Consider a market with 100 identical individuals, each with the demand schedule for electricity of P =

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Consider a market with 100 identical individuals, each with the demand schedule for electricity of P = 10 - Q. They are served by an electric utility that operates with a fixed cost 1,200 and a constant marginal cost of 2. A regulator would like to introduce a two-part tariff, where S is a fixed subscription charge and m is a usage charge per unit of electricity consumed. How should the regulator set S and m to maximize the sum of consumer and producer surplus while allowing the firm to earn exactly zero economic profit?
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Microeconomics

ISBN: 978-0073375854

2nd edition

Authors: Douglas Bernheim, Michael Whinston

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