Question

Suppose SFU has figured out a way to deliver the lectures all around the world in a way that creates a demand for their lectures because in some way they're better than the lectures that you could get from other universities. They evaluate the demand in Korea and demand in Germany. The demands are as follows:

PK = 5,000 – 0.5QK

PG = 3,000 – 0.5QG

where PK and PG are the prices per course (per student) in Korea and Germany, respectively, and QK and QG are the number of students in Korea and Germany willing to enroll at those prices, respectively.

The cost of online delivery is C = 1,800Q, where Q is the total number of students enrolled (i.e., Q = QK + QG).

But the university probably would get the idea that it's not that difficult to distinguish students in Germany from students in Korea by checking, for instance, their citizenship documents when they register for the course and/or checking the location of their ISP (i.e., the university could solve the identification problem on the group level, i.e., tell whether a student is in Germany or in Korea and the university does not really face an arbitrage problem).

SFU decides to practice the 3rd degree (linear) price discrimination.

6. What price would SFU charge in Germany?

7. What price would SFU charge in Korea?

8. What would be their online enrollment in Korea?

9. What would be their online enrollment in Germany?

10. What would be their total online enrollment?

11. What would be the combined surplus in all the markets? I.e., what is the sum of the consumer surplus in Korea, consumer surplus in Germany, and SFU’s producer surplus from selling the instruction in both countries?

Answer 1

6. The price SFU will charge in Germany is 2400. The working for the same is shown below.

7. The price SFU will charge in Korea is 3400. The working is shown below.

8.

The online enrollment in Korea is 3200. The working for this is available in the 2nd image above.

9. The enrollment in Germany is 1200. The working for the same is there in the first image.

10. Total enrollment = QG + QK = 1200 + 3200 = 4400

11.

The total consumer surplus = consumer surplus in Germany + consumer surplus in Korea

= 360,000 + 2,560,000

= 2,920,000

The working is shown in the image below.

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