Mr Lim is a tuition teacher. He is deciding how many hours to teach each day...

Mr Lim is a tuition teacher. He is deciding how many hours to teach each day and how much to charge for his tuition. Each hour of lecture leaves him fatigued, which is equivalent to a cost of $40 per hour to him. He has two students A and B with demand curves as follows:

Student A: PA= 72 - 8Q

Student B: PB = 56 - 4Q where Q is the number of hours he teaches.

(i) If he can teach only one student per hour, obtain the market demand curve for his tuition from the two students. If he wishes to maximise social welfare, how many hours of tuition should he teach? Discuss.

(ii) Suppose that he can broadcast his tuition online, so that both students can listen to his tuition at the same time and consumption is nonrivalrous. Obtain the market demand curve. What is the socially optimal number of hours of tuition he should provide? Discuss.

2018-Jan Q4b

Solutions

Expert Solution

The answer depends on the horizontal or vertical addition of demand curves.

Based on the two situations, the equations for market demand curve has been obtained. Thus we have calculated the answers accordingly

Rahul Sunny answered 1 month ago

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