A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.65. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to
A) decrease tuition, which should boost enrollment enough to balance the budget.
B) decrease tuition, which would bring in more revenue.
C) leave tuition as is-an increase would not help balance the budget.
D) increase tuition, which would generate more revenue.

Question

Quizplus · Accepted Answer

Since the demand elasticity is less than 1 (inelastic), increasing tuition will lead to a proportionally smaller decrease in enrollment, thus increasing total revenue.

A Recent Study on Enrollment at a Liberal Arts College