At the current price of a good,Al's consumer surplus equals eight,and Ben's consumer surplus equals 15.By charging a two-part tariff,a monopolist could increase his profit by
A)8.
B)16.
C)15.
D)30.

Question

Quizplus · Accepted Answer

A two-part tariff includes a fixed fee and a per-unit charge. The monopolist can charge a fixed fee that will capture the consumer surplus of both Al and Ben. Assuming the monopolist can charge a fee that is equal to Al's consumer surplus, then he can charge (15 - 8) = 7 as the per-unit charge. This means that Al will pay 8 for the good and Ben will pay 7 + 8 = 15 for the good.

Under this pricing strategy, the monopolist will capture all of the consumer surplus and increase his profit by the fixed fee. In this case, the monopolist's profit will increase by 8 + 8 = 16 (the sum of Al and Ben's consumer surplus). Therefore, the best choice is B) 16.

At the Current Price of a Good,Al's Consumer Surplus Equals