If a university faces a downward sloping, linear demand curve for the undergraduate education that it provides and is able to engage in perfect, first degree price discrimination(through obtaining detailed financial information from each prospective student and offering different levels of financial aid), then the university’s marginal and average revenue curves will be identical.” Explain why this statement is true, false or uncertain.
1 answer
Tough question. I believe the statement is false. For a perfect price-discriminating monopolist, the demand curve is also the MR curve. This monopolist does not get the same from each person. For the first person, the U gets the highest willingness to pay (P1). For the second the second highest willingness to pay (P2), and so on. However, for n students, the average revenue is (P1+P2+...Pn)/n. The MR for n students is simply Pn. and these two are not the same.