1. Copyright © by Houghton Mifflin Company. All rights reserved. 1 Pricing of Public Goods and Services Marginal cost pricing Two-part tariffs User fees Tolls Limiting government monopoly behavior Price discrimination

2. Copyright © by Houghton Mifflin Company. All rights reserved. 2 Figure 8.7: Marginal Cost Pricing at the University

3. Copyright © by Houghton Mifflin Company. All rights reserved. 3 Figure 8.8: Marginal Cost Pricing Results in a Deficit When There Are Increasing Returns to Scale

4. Copyright © by Houghton Mifflin Company. All rights reserved. 4 Two-part Tariff Solution to the problem of marginal cost pricing in the presence of increasing returns. Charge a two-part tariff: A flat fee for access to the service. A marginal cost fee for each use of the service.

5. Copyright © by Houghton Mifflin Company. All rights reserved. 5 User Fees Specific fees charged based on use. Benefits-received motivation. Fee charged per use of the service.

6. Copyright © by Houghton Mifflin Company. All rights reserved. 6 Tolls Charges for use of public facilities. Examples: Highways Bridges Ferries

7. Copyright © by Houghton Mifflin Company. All rights reserved. 7 Figure 8.9: Congestion Toll Approach

8. Copyright © by Houghton Mifflin Company. All rights reserved. 8 Tolls Issues arising with tolls: Peak load problem. Time of day pricing. Seasonal pricing.

9. Copyright © by Houghton Mifflin Company. All rights reserved. 9 Limiting Government Monopoly Behavior Regulation Public service commission (PSC) Deregulation trend

10. Copyright © by Houghton Mifflin Company. All rights reserved. 10 Price Discrimination Monopolists attempt to price discriminate in order to maximize revenue. Regulation often attempts to limit or prevent price discrimination. Rate regulation often used.