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In: Economics

Jacob is a private math tutor. He has no cost (assume just for simplicity, we know...

Jacob is a private math tutor. He has no cost (assume just for simplicity, we know that opportunity of his time is not zero). Currently Jacob has two students. Andy’s demand function for math private classes is pA = 20−qA while Ben’s demand function is pB = 12−(1/2)qB, where q is number of math classes.

(a) Assume that Jacob cannot price discriminate. Jacob has to charge the uniform price to both students. Find the profit-maximizing price he charges for his services, number of the classes each student takes and his profit. Support your answer by a graph.

Assume that Jacob can price discriminate, and indeed uses 3rd degree price discrimination.

(b) Briefly describe features of this price discrimination and hypothesize which student will pay higher price and why.

(c) What is the price Andy will pay and how many classes does he buy?

(d) What is the price Ben will pay and how many classes does he buy? (

e) What is Jacob’s profit? Support these equilibria with graph. Comment on your findings and compare it with profit from part a).

Solutions

Expert Solution

Rahul Sunny answered 7 months ago
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