5. If a two-part tariff is used to enable this firm to sell its output at the allocatively efficient price, and if there are 20 consumers in the market, then the connection charge per consumer and price (per unit of the product produced) would be: a connection fee of 5 per consumer and price of 1.

   As we learned in question 4, allocatively efficient production leads to a price of 1 and output of 50, with losses of 100. For a two-part tariff to work, the amount of the connection fee must cover those losses. Since there are 20 consumers and losses of 100, the connection fee per consumer must be 100 ÷ 20 = 5. To the right we show revenue from sales as the green area and revenue from the connection fee as the blue area.

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