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 generate more revenue.

Question

Quizplus · Accepted Answer

Since the demand elasticity is less than one (0.91), it means that an increase in tuition will decrease the enrollment, but not as much as the increase in tuition. Therefore, the revenue will increase with a tuition increase, and the revenue-maximizing decision is to increase tuition.

A Recent Study on Enrollment at a Liberal Arts College