The Board of Ursinus College in Pennsylvania raised its tuition and fees 17.6 percent to $23,460in 2000. It subsequently received 200 more applications than the year before. The president of the college surmised that “applicants had apparently concluded that if the college cost more, it must be better.” Other colleges that raised tuition to match rival colleges in recent years include the University of Notre Dame, Bryn Mawr College, Rice University, and the University of Richmond. They also experienced an increase in applications. In contrast, North Carolina Wesleyan College lowered their tuition and fees about 10 years ago by 22 percent and attracted fewer students. The college president concluded that “it didn’t work out the way it had been hoped. People don’t want cheap.”You are hired as a consultant to a President of a liberal arts college in the East. You are asked to evaluate a recommendation by the college admissions Director, Susan Hansen, to increase tuition and to reduce financial aid to students. Susan argues that the data from competing colleges suggest that the demand curves for colleges slope upward—the quantity demanded increases with price. Susan projects that the increase in tuition and reduction in financial aid will solve the school’s financial problems. Last year, the college enrolled400 new students who each paid an effective tuition of $15,000 (after financial aid), totaling$6,000,000. She projects that with the increased demand from charging an effective tuition of$25,000, the college will be able to enroll 600 new students (of equal or better quality), totaling$15,000,000.
Evaluate Susan’s analysis and recommendation.
