Aa Aa 5. Price discrimination with two prices Patrick works as a private tutor o
ID: 1124585 • Letter: A
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Aa Aa 5. Price discrimination with two prices Patrick works as a private tutor on evenings and weekends. He has no fixed costs, and his opportunity cost of giving a tutoring session is $125. He has nine potential students each week whose maximum willingness to pay are shown in the following table: Maximum Willingness to Pay (Dollars) 200 190 180 170 160 150 140 130 120 Student Suppose Patrick has to charge a single price to all of his students. Fill in the blanks in the Total Revenue column in the following table with the most total revenue he could earn at that quantity of sessions. Then, compute the marginal revenue at the quantity of tutoring sessions and fill in the corresponding Marginal Revenue column. Marginal Revenue (Dollars per tutoring session) Price (Dollars per Total Revenue Number of Students tutoring session) (Dollars) 200 190 180 170 160 150 160 540 120 100 80 800 900Explanation / Answer
Fill in the blanks
Total revenue table.
The values will be (from top) 200, 380, 540 (already given), 680.
Marginal revenue table.
The values will be (starting from the top) 200, 180, 160 (already given) 140 and so on.
Because the opportunity cost of giving a session is $125. Patrik will not give any tuition if he is getting paid below that. Now if the Patrik is the only person giving tuition and he has to charge a single price to all his students he will maximise his profit by giving tuitions at a price of $130 and a total of 8 students.
If he finds a new hurdle of students he will charge them at a price of $170(list price market) and 170 in discount price submarket and only teaches 4 more tuition lessons. (Patrik cannot give more than 8 tutoring lessons because that will decrease his opportunity cost. Anything beyond 8 classes is loss for him )
In total Patric gives 8 tutoring sessions. In this case, total surplus rises with price discrimination.
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