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High income and low income applicants

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Reference no: EM13133890

Intermediate Microeconomics

A small forhprofit college could charge a tuition above $40,000 per year and face a demand Q = 800 - 0.01P or charge less than $40,000 per year and face a total demand Q = 1,200 - 0.02P. The college has two types of applicants: high income and low income applicants.

Highhincome applicants can pay tuition for PH = 80,000 - 100qH, while lowhincome applicants can pay tuition for PL = 40,000 - 100qL.

Suppose the college has an average and marginal cost of $30,000.

a) If the college had to charge the same tuition to all students, would it accept lowhincome applicant? Clearly justify your answer.

b) If the college could price discriminate, would it accept lowhincome applicants?

c) Would allowing the college to price discriminate hurt highhincome applicants? Clearly justify your answer.

d) Would allowing the college to price discriminate increase total surplus? Clearly justify your answer.

Reference no: EM13133890

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