Revenues when a firm engages in peak-load pricing based on the figure below will be: A) (P₁ × Q₁) + (P₄ × Q₃). B) (P₃ × Q₁) + (P₄ × Q₃). C) (P₁ × Q₂) + (P₂ × Q₃). D) (P₄ × Q₃).

Question

Quizplus · Accepted Answer

Peak-load pricing involves charging higher prices during periods of high demand (peak) and lower prices during periods of low demand (off-peak). In the figure given, P₃ represents the higher price charged during peak hours, and Q₁ represents the quantity demanded during peak hours. P₄ represents the lower price charged during off-peak hours, and Q₃ represents the quantity demanded during off-peak hours. To calculate the revenues generated by peak-load pricing, we need to multiply the price by the quantity demanded during each period and add them up. Therefore, the correct formula is: (P₃ x Q₁) + (P₄ x Q₃) This corresponds to choice B.

Revenues When a Firm Engages in Peak-Load Pricing Based on the Figure