Fixed, Variable, and Average Costs
Midstate University Is Trying to Decide

question 19

Essay

Fixed, Variable, and Average Costs
Midstate University is trying to decide whether to allow 100 more students into the university. Tuition is $5,000 per year. The controller has determined the following schedule of costs to educate students: $$\begin{array} { | c | r | } \hline \text { Number of Students } & \text { Total Costs } \\\hline 4,000 & \$ 30,000,000 \\\hline 4,100 & 30,300,000 \\\hline 4,200 & 30,600,000 \\\hline 4,300 & 30,900,000 \\\hline\end{array}$$ The current enrollment is 4,200 students. The president of the university has calculated the cost per student in the following manner: $30,600,000/4,200 students = $7286 per student. The president was wondering why the university should accept more students if the tuition is only $5,000.
Required:
a. What is wrong with the president's calculation?
b. What are the fixed and variable costs of operating the university?

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Definitions:

Mutual Fund

An investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.

Brokers

Individuals or firms that act as intermediaries between buyers and sellers in financial transactions, earning a commission for their services.

Index Funds

Mutual funds or exchange-traded funds that aim to replicate the performance of a specific market index by holding the same stocks in the same proportions.

Altruistic Behavior

Actions undertaken to help others with no direct benefit to the individual performing the actions, often at a cost to themselves.