The Ramsey pricing rule makes it possible to set prices that will cover the common fixed cost of the producer but also minimize the loss of

Question

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The Ramsey pricing rule aims at achieving efficient allocation of resources by minimizing the welfare loss in a market with monopolistic power. The best choice is to minimize the loss of consumer surplus as it represents the welfare loss resulting from the market power of the producer. By adjusting the price for different goods or services, the Ramsey pricing rule ensures that the marginal price elasticity of demand is equalized across all goods produced. This results in a pricing structure that reflects the true cost of producing goods, while minimizing the loss of consumer surplus. Therefore, the Ramsey pricing rule makes it possible to set prices that will cover the common fixed cost of the producer without reducing consumer welfare (consumer surplus).

The Ramsey Pricing Rule Makes It Possible to Set Prices