Suppose that, in an attempt to raise more revenue, Nobody State University increases its tuition. Will this necessarily result in more revenue?
In the last three decades, the cost of education at the public colleges and universities has skyrocketed and stretched education seekers to the hilt. Arguably, colleges and university need to adjust their tuition fees to meet the expenses in provision of educational services. Consequently, they must constantly review their pricing of tuition in line with the availability of federal and state aids, and this therefore has led to the surge in costs of higher education, which has even outpaced inflation and growth of costs in health care (Campos, 2015). Undoubtedly, Nobody State University (NSU) is increasing …show more content…
If elasticity is unitary, the increase in tuition would not cause any change revenue; if it is elastic, implies that raising tuition would cause a downfall in revenue; if it is inelastic demand, raising tuition would lead to increase in revenue (Rios, McConnell & Brue, 2013). Arguably, revenue, R for NSU is obtained by multiplying price, P (in this case tuition fee) with the quantity sold, T (in this case enrolment) i.e. R = P*Q. thus, by differentiating it with respect to price, P, it is found that R = Q + P. hence, for the equation, R = Q + P, assuming ‘e’ = (-) , in which ‘e’ is the absolute value of the price elasticity, R = Q (1-e). Often, price elasticity of demand is calculated by diving the proportionate change in quantity demanded (in case of NSU, change in enrolment) by the proportionate change in price (in this case change in tuition fee). Ideally, this implies that when the value of price of elasticity is larger than one (if the is demand elastic), raising of price (tuition fee) results in decrease of revenue. When the value of price of elasticity is smaller than one (if the demand is inelastic), an increase in tuition would lead to an increase in revenue. However, if the value of elasticity is one, this implies that an increase in tuition fee does not influence revenue. Therefore, if the true value of elasticity is 1.2, which implies that raising of
In the last three decades, the cost of education at the public colleges and universities has skyrocketed and stretched education seekers to the hilt. Arguably, colleges and university need to adjust their tuition fees to meet the expenses in provision of educational services. Consequently, they must constantly review their pricing of tuition in line with the availability of federal and state aids, and this therefore has led to the surge in costs of higher education, which has even outpaced inflation and growth of costs in health care (Campos, 2015). Undoubtedly, Nobody State University (NSU) is increasing …show more content…
If elasticity is unitary, the increase in tuition would not cause any change revenue; if it is elastic, implies that raising tuition would cause a downfall in revenue; if it is inelastic demand, raising tuition would lead to increase in revenue (Rios, McConnell & Brue, 2013). Arguably, revenue, R for NSU is obtained by multiplying price, P (in this case tuition fee) with the quantity sold, T (in this case enrolment) i.e. R = P*Q. thus, by differentiating it with respect to price, P, it is found that R = Q + P. hence, for the equation, R = Q + P, assuming ‘e’ = (-) , in which ‘e’ is the absolute value of the price elasticity, R = Q (1-e). Often, price elasticity of demand is calculated by diving the proportionate change in quantity demanded (in case of NSU, change in enrolment) by the proportionate change in price (in this case change in tuition fee). Ideally, this implies that when the value of price of elasticity is larger than one (if the is demand elastic), raising of price (tuition fee) results in decrease of revenue. When the value of price of elasticity is smaller than one (if the demand is inelastic), an increase in tuition would lead to an increase in revenue. However, if the value of elasticity is one, this implies that an increase in tuition fee does not influence revenue. Therefore, if the true value of elasticity is 1.2, which implies that raising of