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Raise or Lower Tuition


Nickki Johnson
ECO204: Principles of Microeconomics (BAK1529A)
Instructor: Brian Addis
July 27, 2015

Raise or Lower Tuition

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Raise or Lower Tuition

Many people expect to get at least an associate degree sometime in


their lifetime.

However, just some of them can really complete it

without having to quit. High tuition costs are the main reason people
cannot continue going to college or university. Raising tuition can
provide more revenue for the institution, but it can affect the
enrollment of new students. With this exercise it will be discussed if
raising tuition will result in more revenue, the conditions under which
revenue will rise, fall, or remain the same focusing on the relationship
between the increased revenue from students enrolling at Nobody
State University (NSU) despite the higher tuition and the lost revenue
from possible lower enrollment. In addition, if the price elasticity were
(-1.2) suggest how to expand the revenue and make recommendations
to the Universitys President.
There are many options where institutions can use to help increase
their revenues. Some of these options can include the rise of tuition
and tuition fees. Raising the tuition fees can have some negative
consequences like the decrease on the number of enrolled students.
Establishing tuition rates at institutions of higher learning is always of
fundamental strategic importance to college administrators who are
suffering adverse financial effects from reduced allocations from
external sources and increased educational and facility costs. (Bryan,

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G. A., & Whipple, T. W. (1995). Nobody State University can consider
increasing their revenue especially under a harsh economic satiation
for the current society.

Raising Tuition
Tuition fees are the best way to obtain revenue. Higher education is
considered an investment, so the cost of tuitions, fees, books and
everything else are considered and investment for the future. Nobody
State University needs to raise the tuition cost, but first need to know
how it can affect the revenue of the institution. Parents always expect
that their child go to college to obtain a higher education. So despite
the rise on tuition there still a higher demand on getting a higher
education even when the tuitions and fees rise. Now, Nobody State
University needs to determine how will affect the rise of tuitions and
fees. The rise of tuition for NSU can affect the institution in both ways
positively and negatively. It can cause a decrease in the number of
applicants coming to the institution by making the institution less
affordable and making the institution to lose revenue.
Conditions in which revenue will rise, fall, or still the same
There are many conditions in which the revenue of Nobody State
University can change. Price discrimination is a practice used to raise
the revenue by separation sales on a unit-by-unit basis. Some
colleges charge in-state and out-of-state tuition because it is very easy

Raise or Lower Tuition


to separate these two markets (Amacher & Pate, 2013). By doing this
the revenue of NSU can increase but it can decrease the enrollment of
new students. Nobody State University can raise the tuition and fees
and offer help for the cost of books and living expenses by offering free
online access to the Universities Library and a discount for those that
choose to live on campus, this is called opportunity cost that is
sacrificing the production of something for something else, this way
NSU can keep the revenue the same. Last but not least, raising the
revenue is the hardest part for any institution since there are many
aspects that have to be taken in consideration. For Nobody State
University they will have to take in consideration the quality of services
they offer before raising any tuition of fees. If the quality of services is
high there will be no problem if they raise their tuition costs and fees.
Relationship between the increased revenue from enrollments
Elasticity is the measure of the sensitivity, or responsiveness, of
quantity demanded or quantity supplied to changes in price (Amacher
& Pate, 2013). The tuition price elasticity is measure by the
responsiveness of the number of students that enroll regardless of the
tuition costs. The administration of Nobody State University can make
a decision based on the responsiveness. Nobody State University will
notice a decrease in enrollment and revenue if the rise in tuition costs
causes the students to be sensitive to the increase in tuitions and fees.

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How to expand the revenue if the price were (-1.2)
Nobody State University price elasticity measures on the relationship of
the number of students enrolled and revenues. Considering raising the
tuition costs it has to be considered how will affect the number of
students that will not be able to afford the number of tuition costs.
"Elasticity measures how the dependent variable responds to changes
in any one of the independent variables. The general formula to
determine this responsiveness is, Elasticity = percent change in the
dependent variable/ percent change in the independent
variable."(Amacher & Pate, 2013). If Nobody State University uses this
formula to calculate it can find out the real price elasticity for the
tuition costs. The value of a price is inelastic if the price is less than
one and it will cause the revenue to fall. If the price is one, the tuition
will stay the same. In other words, Nobody State University will be able
to increase their tuition by a small quantity without affecting the
number of enrollments.
Recommendations to the Universitys President
Based on the information above, Nobody State University will be able
to raise the tuition by a small amount without affecting the number of
enrollments coming to the institution. However, the increase will not
create any revenue. The recommendations are to consider other ways
to increase revenue instead of raising the tuition. An option to increase
revenue for Nobody State University is to open online courses that can

Raise or Lower Tuition


increase enrollment from people outside state and eventually will
increase revenue. Also, the use of the different type of advertisements
like radio commercials and online advertisements is a good way to
increase enrollment and revenue. Offering the institutions facility to
local businesses for any type of seminars or activities can also increase
revenue. So as we see, increasing tuition is not the only option to
increase revenue for Nobody State University.
If I was Nobody State Universitys President
Trying to a find way to increase the revenue for Nobody State
University without affecting the institution is hard. First step would be
to study the institutions expenses and income. If there are any
expanses that can be cut that will be the first thing to do. Then comes
the introduction of the online courses by offering it to the new students
and the already enrolled students. Raising the tuition will be the last
option since to keep the institution as affordable as possible is the
goal. Therefore, getting a higher education is a very important task for
many people, but because many institutions raise their costs every
year many students have to drop out of college because they cannot
afford the costs. However, many institutions have to increase tuition to
be able to keep the school running. Raising tuition can provide more
revenue, but it can affect the enrollment of new students. Trying to find
different options to increase the institutions revenue without affecting
the cost of tuition is the goal.

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References

Amacher, R., & Pate, J. (2013). Microeconomics principles and policies.


San Diego, CA: Bridgepoint Education, Inc.
Bryan, G. A., & Whipple, T. W. (1995). Tuition elasticity of the demand
for higher education among current students: A pricing model.
The Journal of Higher Education, 66(5), 560. Retrieved from

Raise or Lower Tuition


http://search.proquest.com/docview/205336131?
accountid=32521