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.

(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).

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Expert Solution

Rahul Sunny answered 5 months ago

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