If a firm has consumers with different demands practices two- part pricing and it is profitable for the firm to sell to all consumer types, the profit- maximizing user fee will be ______the firm's marginal cost of use.
A)equal to
B)less than
C)double
D)greater than

Question

Quizplus · Accepted Answer

The profit-maximizing user fee will be greater than the firm's marginal cost of use because two-part pricing involves charging a fixed fee (which covers the fixed costs) and a user fee (which covers the variable costs). Since the firm wants to price discriminate between consumers with different demands, it will set the user fee higher for consumers with higher willingness to pay, which means the user fee will be higher than the marginal cost of use for these consumers. Overall, the two-part pricing strategy will allow the firm to capture more consumer surplus and increase its profits.

If a Firm Has Consumers with Different Demands Practices Two-