Related to the Economics in Practice on page 179: A college has an annual operating budget of $120 million. It educates and houses 1,500 students, for an average cost of $80,000 per student per year. Revenues per student from tuition, room, and board are considerably less than $80,000. Which of the following, if true, would strengthen the claim that increasing the number of students educated per year will result in a net financial gain for the college?
A) Other colleges spend more than $80,000 per student per year.
B) The vast majority of the operating budget is composed of fixed costs.
C) Spending more than it earns will force the college to either borrow or use some of its endowment to make up the difference.
D) The college expects that it will be able to maintain its academic standards even if it increases enrollment.

Question

Quizplus · Accepted Answer

If the majority of the operating budget is composed of fixed costs, increasing the number of students would spread these costs over more students, potentially reducing the average cost per student and leading to a net financial gain.

Related to the Economics in Practice on Page 179: a College