Eleanor works as a private tutor on evenings and weekends. She has no fixed costs, and her opportunity cost of giving a tutoring session is $25.
She has nine potential students each week whose willingness to pay are shown in the following table:
Students (Sessions per week)
Willingness to Pay (Dollars per tutoring session)
Total Revenue (Dollars per week)
Marginal Revenue (Dollars per tutoring session)
1
2
3
4
5
6
7
8
9
If Eleanor has to charge a single price to all of her students, she will maximize her profit by giving tutoring sessions. This is than the efficient number, which is tutoring sessions.
If Eleanor can practice perfect price discrimination, she should give tutoring sessions.
Now suppose Eleanor cannot practice perfect price discrimination, but she is able to find a hurdle that identifies the group of students who are willing to pay at least $34 for a tutoring session (the
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