Question: Cornell is committed to its current policy of allowing the
Cornell is committed to its current policy of allowing the children of its faculty to attend the university without paying tuition. Suppose the demand curve of Cornell faculty children (CFCs) for slots in other universities is given by P = 30 - 5Q0, where P is the tuition price charged by other universities (in thousands of dollars) and Q0 is the number of CFCs who attend those universities. Cornell is now considering a proposal to subsidize some proportion k of the tuition charged to CFCs who attend other universities. Suppose Cornell knows that it can fill all its available slots with non- CFCs who pay tuition at the rate of $45,000/yr. Assuming that all CFCs who do not attend other universities will go to Cornell, what value of k will maximize Cornell’s tuition revenues, net of outside subsidies, if the tuition price at all other universities is $24,000/yr?
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