Pricing of garbage collection

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Thomas Kinnaman, an economist at Bucknell University, has analyzed the pricing of garbage collection:

Setting the appropriate fee for garbage collection can be tricky when there are both fixed and marginal costs of garbage collection.... A curbside price set equal to the average total cost of collection would have high garbage generators partially subsidizing the fixed costs of low garbage generators. For example, if the time that a truck idles outside a one-can household and a two-can household is the same, and the fees are set to cover the total cost of garbage collection, then the two-can household paying twice that of the one-can household has subsidized a portion of the collection costs of the one-can household. Briefly explain how a city might solve this pricing problem by using a two-part tariff in setting the garbage collection fees it charges households.

Reference no: EM131024801

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