Many public utilities sell their products on multi-part tariffs. The consumer must pay a connection...

Question

Many public utilities sell their products on multi-part tariffs. The consumer must pay a connection charge for the right to consume (say) electricity, irrespective of the amount consumed. The price paid for the first n units will exceed the price paid for any units consumed in excess of n. Draw the feasible set for the consumer, with electricity on one axis and a consumption good on the other. Distinguish between the average and marginal prices of electricity and investigate the effects of changes in the connection charge and the price of electricity.

Rochak · Accepted Answer

The change in the connection charge will effect will not have any effect on the consumption of electricity because all the people who have the connection established will not leave the connection, but any new connection will not be taken because of the price increase.
The price of electricity will...

Many public utilities sell their products on multi-part tariffs. The consumer must pay a connection charge for the right to consume (say) electricity, irrespective of the amount consumed. The price...

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