Well there must be private schools somewhere that admit children of below-average intelligence, due to the profit to be had from rich parents with said children, so perhaps it would be instructive to look at how those schools handle it.
In the UK, I've seen richer parents simply send their children who didn't not meet private school's admissions and performance requirements to state school (the one I attended!) whilst their siblings passed the requirements and remained at the private school.
I remember two kids from primary school seemed to have disappeared and then reappeared a few months down the line from school year start. They didn't make the cut like their siblings. I think one of those kids, thinking back, was the son of the managing director of the company that is now TalkTalk pre-acquisition.
It's not. Private schools I've heard of and experienced have strong academic selection criteria on top of being incredibly expensive.
My son had funding for a time for nursery and was moved into the prep school. It was like seeing a foreign school. Class sizes were naturally smaller and I noted things such as their morning 'prayer', which went along the lines of "I vow to work hard today in everything I do", where as my morning prayer in an RC school was the Our Father.
I also saw kids in my sons class who, at 3 years old, were able to compute divisions in their head and articulate in a way that I've never seen a child that age speak.
These places are optimised for kids who have a lot of money backing them up and the brain power to boot. In some respects, their parents ability to simply hire help to ensure their kids do well academically must be noted too.
Not exactly, you've not demonstrated that the private schools have any incentive to even try. They can cream off the healthy, docile and rich and make money from that, so why should they accept any more challenge than that? After all, once you've done the initial skim, you don't actually need to be good educationalists, the filter has done all the work for you, and every kid you reject makes your competition look worse.
Plus the research shows private schools don't actually help you educationally, so they (like charter schools) must actually be worse at their jobs once you factor in the head start that selection gives them.