Question
This problem relates to the Belgian electricity regulation commission. All monetary amounts are in Belgian francs (BF). Given the huge fixed costs faced by the
This problem relates to the Belgian electricity regulation commission. All monetary amounts are in Belgian francs (BF). Given the huge fixed costs faced by the government-owned Belgian electric power utilities, the commission decided to charge a uniform price of 4.810BF/kWh, far in excess of the marginal cost of l BF/kWh. Then someone suggested that the government could make everyone better off -- small customers, large customers, the government -- by offering consumers a choice of two tariffs. Customers could either choose the above uniform price policy or they could choose a two-part tariff with a 1,173BF subscription fee per year and a unit price of 2.752BF/kWh. Show how this suggestion might achieve what it claims to achieve. What is a necessary condition for the proposal to work?
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