Authors
1 Faculty of Economics, Allameh Tabatabai University
2 Faculty member of the Faculty of Economics, Allameh Tabatabai University
Abstract
According to textbook arguments marginal cost pricing scores first on the effciency ground. However,if the monopolistic firm benefits from increasing returns to scale, the industry will not be financially viable. If this is the case, one option, which maximizes the welfare subject to a break-even constraint, is Ramsey Pricing. In this study this method of pricing is applied to the Iranian Electricity Industry.
The prices are offered for different types of usage (residential, agricultural, public and commercial). The present study applies the direct price elasticity of demand for each usage as well as the marginal cost of producing, transmitting and distributing electricity.
These prices are cpmputed by using a programme in MATLAB environment for peak and off-peak periods. Finally, the resulting welfare changes arising from applying Ramsey Pricing as an alternative model are estimated, and proven to be positive on balance.
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