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Two Part Tariff     An approach known as a Two-Part Tariff is often used to enable Natural Monopolies to earn sufficient revenue while pricing at Marginal Cost (at least in principle). A Two-Part Tariff involves a fixed, usually monthly, fee for remaining connected to the service and a per-unit fee for the use of the service.

    Most electric generating utilities and local phone service charge you a monthly fee even if don't use their services at all (i.e. you sit in the dark and neither make nor receive phone calls). In theory, these fix-fee revenues allow the utility to price at marginal cost, while still collecting enough revenue to cover total costs. Thus, this method can achieve allocative efficiency without forcing the firm to lose money. In reality, there is little reason to believe that most utilities have set per-unit prices equal to marginal cost.

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