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Eastern University 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 Eastern 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. Eastern is now considering a proposal to subsidize some proportion k of the tuition charged to CFCs who attend other universities. Suppose Eastern knows that it can fill all its available slots with non-CFCs who pay tuition at the rate of $42,000/yr. Assuming that all CFCs who do not attend other universities will go to Eastern, what value of k will maximize Eastern’s tuition revenues, net of outside subsidies, if the tuition price at all other universities is $24,000/yr?
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