Question

An artisan who creates customized furniture has a customer who is interested in purchasing several pieces of furniture. The artisan decides to sell the furniture via a two-part tariff, charging a fee to work with the customer and an additional price for each individual piece of furniture. How should the artisan determine the price of each piece of furniture?

Answer 1

Answer:

2) Set the price of each piece of furniture equal to the marginal cost of producing it.

Explanation:

What happens in two-part tariff is that the producer recovers the entire cost of producing by charging price equal to the marginal cost.

This helps him recover cost and the entire fee the producer charges results in profits eventually. Hence, the profits is the consumer 'surplus' that we calculate given that the price of product is equal to marginal cost.

So answer here is 2- Set the price of each piece of furniture equal to the marginal cost of producing it.