Managerial Economics and Organizational Architecture
Case Study: Setting Tuition and Financial Aid
Saint Leo University Saint Leo, Florida
As a consultant for the Admissions Director, Susan Hansen, I would recommend that she take a very through look at what she is proposing for raising the costs of tuition. I understand that she is arguing her point against the data of other colleges in the area, but that doesn’t always tell the whole story. To compare, Ursinus College raised their “tuition and fees 17.6 percent to $23,460 in 2000” (Brickley, Smith, & Zimmerman, 2009) and saw an increase in applicants. An important note that is not addresses in the case study is that while tuition increases, so does the need for financial aid. She is proposing to increase tuition while simultaneously decreases the amount of financial aid for students. Her theory states that by doing this, the college will attract more applications. She anticipates that if the tuition is raised to $25,000 and they enroll 600 new students, the total out come for the year will be $15,000,000. Susan also needs thoroughly understand and consider that even though Ursinus College and the others had the success of gaining more applicants while raising tuition, all those colleges increased their amount of available financial aid as well. With her plan of decreasing financial aid, this leaves no incentive for potential students to apply to her college. This will actually cause a negative effect and will push students and parents to look else while where they will receive more for their money. It is also important to note that the revenue that is generated from tuition has a direct effect on the product price and the quantity demanded. For the school to generate and receive revenue from raising the tuition they will need to ensure that the elasticity of demand is...