You are thinking about tutoring students in economics, and your research has convinced you that you face the following demand curve for your services:

Price per Hour Number of Students

of Tutoring Tutored per Week

>$50 ..............0

$40 ..............1

$35 ..............2

$27 ..............3

$26 ..............4

$20 ..............5

$15 ..............6

< $15 ..............6

Each student who hires you gets one hour of tutoring per week. You have decided that your time and effort is worth $25 per hour and that you will not tutor anyone for less than that.

a. Suppose you are wary that your students might talk to each other about the price you charge, so you decide to charge them all the same price. Determine (1) how many students you will tutor; (2) what price you will charge; and (3) your weekly earnings from tutoring.

b. Now suppose you discover that your students don’t know each other, and you decide to perfectly price discriminate. Once again, determine (1) how many students you will tutor; (2) what price you will charge; and (3) your weekly earnings from tutoring.

Now suppose that your city requires all tutors to get a license, at a cost of $1,300 per year ($25 per week).

c. Does it make sense for you to buy this license and be a tutor if you must charge each student the same price? Explain.

d. Does it make sense for you to buy the license and be a tutor if you can perfectly price discriminate? Explain.