A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91.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 bring in more revenue.

Question

Quizplus · Accepted Answer

According to the study, demand elasticity is 0.91. This means that a 1% increase in tuition would result in a 0.91% decrease in enrollment. Since the revenue-maximizing decision needs to balance the budget, the administration needs to find a way to increase revenue without losing too many students.

If the administration decides to decrease tuition, they may bring in more students, but it would not necessarily be enough to balance the budget. Additionally, if they decrease tuition too much, they may end up losing revenue instead of gaining it.

Leaving tuition as is may not be a viable option since the budget is not balanced currently.

Based on the study's findings, the best option would be to increase tuition. While this would result in some students leaving, the increase in revenue from those who remain would likely offset the loss. Therefore, option D) is the best choice.

A Recent Study on Enrollment at a Liberal Arts College