NOBODY STATE UNIVERSITY ECONOMIC ADVISORY
The Nobody State University as described faces a critical financial challenge that requires a careful analysis. The decision taken shall have a critical impact on the financial aspects of the university. This is an advisory paper using the best micro-economic approaches available.
If the Nobody State University increases the tuition fee, the following scenarios may occur. According to Robert and Frank (2008), an increase in price leads to a corresponding decrease in demand. In this case, the raising of the tuition fee may not necessary lead to an increase in revenue. It can increase, remain the same or go down.
The revenues may fail to increase if the increase leads to a decrease in the student enrollment. As mentioned earlier, the decrease in demand shall mean that the university records a decreased enrolment in the consequent enrollments. Therefore, the total university revenues collected from the student remains below the current revenues. On the same note, an increase in tuition fees comes with demands. In is common for clients to demand better services in the event of an increased price. In this case, the Nobody State University shall be under obligation to provide better services to match the increased tuition fee. In addition, if the enrolment reduces, the university as any other institution would spend a lot of money in marketing that may lead to a reduction of the overall revenues. The workers may also demand an increase in their pay through industrial action that may result in spending more than the increased tuition fee.
The revenues may rise under the following conditions. If the university increases the tuition fee and the student enrolment remains constant, the university revenue shall increase. In some instances, high cost indicates quality. The increment of the tuition fee may attract a higher number of students due to the increased tuition in the belief that the higher tuition implies quality. If that happens, then the increase in tuition shall lead to a corresponding increase in revenues.
It is also possible for the revenues to remain constant. If the increase of the tuition leads to a slight change in the enrolment, the revenue may remain the same (Samuelson and Nordhaus, 2001). For example, it is possible that the students who transfer are only enough to match the increased tuition making the revenue remain the same. The increase in tution may also come with other obligation requiring the same increment to be used either in advertisement or in improving the quality of service such as more tutors, and tuition blocks, and hence the revenues do not change.
In the event of an increase in tuition fee leads to an increase in enrollment as mentioned earlier, the NSU shall have an immediate increase in revenues. However, such is applicable if the cost of running the institution remains the same. Such shall happen due to the increased number of students who would pay more. However, there is a possibility the increase in student enrolment comes with more demands such as employment of more lecturers, extension of the tuition blocks, among others. If the cost of adjustment is lower than the total gains from the increase, then, the NSU shall have an increase. In case, the increase in the enrolment leads to more cost, then the revenues may lower, or remain the same. Such a situation can be temporary with a possible increase in the near future. The adjustment process may lead to a temporary drop in total revenues.
On the other hand, an increase may lead to a decrease in the enrolment to the university. If this happens, there can be an immediate drop in the revenues of the university. When such occurs, the university can adjust accordingly reducing the cost of running the institution leading an eventual increase in revenues. Such can involve the reduction of the number of tutors and other staff in the university. Such a move would remove redundant employees due to lowered enrolment rates. However, the drop might be sharp to such extent that it leads to reduced revenues even in the long run.
It is clear that an increase in tuition in NSU leads to three situations. First, when demand is elastic, the revenues shall reduce. Secondly, if the demand is a “unit elastic” then revenues remain the same, and thirdly, if the demand is inelastic the increase in tuition fee shall attract an increase in the revenues collected (“principles of Microeconomics, n.d). Therefore, with a true elastic demand of -1.2, the university might opt to increase fees for particular students in the university other than all of them. At the same, time, the university might consider slow, but steady increase in the tuition fees over a given period.
Given the opportunity to solve the problem of NSU, I would first cut down unnecessary expenditure that might exist in the university. In addition, I would also increase the enrollment of the students by increasing the marketing of the university to attract more students. I can also approach the alumnae of the institution to helping the raising of revenues within the university. I can also engage private companies and partners with them to help in raising revenues through partnership.
Reference
Frank, Robert (2008). Microeconomics and Behavior (7th ed.). McGraw-Hill.
Samuelson; Nordhaus (2001). Microeconomics (17th ed.). McGraw-Hill
Ruffin, Roy J.; Gregory, Paul R. (1988). Principles of Economics (3rd ed.). Glenview, Illinois:
Scott, Foresman.
Principles of Microeconomics. Retrieved from http://www.oswego.edu/~kane/eco101.htm on
4th May 2014.
