As the consultant to evaluate the best course of action to improve college enrollment, I will analyze the validity of the Admissions Director, for a President of liberal arts and college. I will also review the pattern and results of other colleges that have modified their tuition assistance and financial aid. According to Brickley, Smith and Zimmerman, (2016), there was a college that lowered their tuition fee by 22% which resulted in a decline in students’ enrollments (pg. 138). In addition, Brickley, et al., (2016), also states that there have been several colleges that increase their tuition assistance and every single one received an increase in enrollment.
Therefore, it leads me to believe, that enrollees are making a correlation between the college tuition cost and the college quality. It seems as if they believe that if tuition is higher the school must be better, and if the tuition is discounted or lowered then the school must be of less quality or value. Which is the opposite from the norm, meaning that consumers are usually drawn to make a purchase for goods in services that carry a lesser cost rather than a higher price. This is all part of elasticity and understanding how this affects different products and services. Demand elasticity is known as “the percentage change in quantity demanded given a percentage change in its price” (Brickley, et al., 2016, pg.138).
Based on the historical data provided by the school admissions director, when tuition price was $15,000, this resulted in an attendance of 400 enrollees, and therefore, it is expected to see that if the tuition price increase by $10,000 to $25,000 that the enrollee’s numbers will increase by an additional 200, bringing the total numbers of enrollees to 600. The following equation is a representation of elasticity as it relates to the above information.
Elasticity of Demand = Percent in Quantity / Percent in Price
%Q = [(Q1-Q2) / (Q1+Q2)/2] ÷ %P = [(P1-P2) / (P1+P2)/2]
%Q = [(400-600) / (400+600)/2] ÷ %P = [(15,000-25,000) / (15,000+25,000)/2]
%Q = [(-200) / (1,000)/2] ÷ %P = [(10,000) / (40,000)/2]
%Q = [(-200) / (500)] ÷ %P = [(10,000) / (20,000)]
%Q = -0.4 ÷%P = 0.5
Elasticity of demand = 0.8
“If the elasticity is greater than or equal to 1, the curve is considered to be elastic. If it is less than one, the curve is said to be inelastic” (Hayes, n.d.). Based on what Hayes has stated (n.d.), for this particular scenario the curve is inelastic, and therefore, when there is a small increase in price, then an improvement in revenue occurs. There is no data backing up the assessment provided by the admissions director that lowering or discontinuing financial aid, would result in revenue. It is necessary to “develop effective tuition pricing strategies to recruit and enroll students across different financial need levels, academic abilities and demographic categories” (Chen, 2018).
- Brickley, J., Smith, C., & Zimmerman, J. (2016). Managerial economics and organizational architecture (6th ed.). New York: McGraw Hill/Irwin.
- Chen, J. (2018). The impact of tuition pricing on freshman enrollment decisions in a private, four-year, nonprofit higher education institution (Order No. 10760667). Available from ProQuest Dissertations & Theses Global. (2001147637). Retrieved from https://saintleo.idm.oclc.org/login?url=https://search-proquest-com.saintleo.idm.oclc.org/docview/2001147637?accountid=4870
- Hayes, A. (n.d.). Economics Basics Elasticity. Retrieved from https://www.investopedia.com/university/economics/economics4.asp