A Graphical Proof of a Theorem on the Pricing of Public Utilities-A Short Note

Hotelling's famous theorem demonstrated that any excise tax which replaced an income tax yielding the same revenue placed the individual in a less preferred position and that a price above the marginal cost is similar to excise tax hence marginal cost pricing is better under his assumptions. In this paper an attempt is made to give a rather different graphical proof of the same theorem than the usual graphs. The advantage of our proof is that it avoids the confusion that may arise from a neglect of the vital distinction between the "total" and the "marginal conditions for a social optimum.