Question

A study of cost curves in postsecondary education, using data from the top 66 research universities in the United States, estimated that the average cost per student falls with the number of students until enrollment reaches approximately 30,000 full-time undergraduate students. Consider the typical research university with an enrollment of 23,500 full-time undergraduate students (that was the average undergraduate enrollment at the top 63 public research universities in 2011/12, according to the National Science Foundation).
a) Do these findings imply that, at the typical research university in the US, the cost of enrolling an additional undergraduate student is higher or lower than the average cost per student? Why?
b) Do these findings imply that the typical research university has not exhausted economies of scale in postsecondary education? If so, should the typical university grow in size? Explain.

Answer 1

a.

Answer: Lower

As per the study, average cost decreases till the enrollment reaches 30,000 students (full capacity). In case of 23,500 students, the full capacity doesn’t yet reached; every additional enrollment gives a decreasing average cost till the number reaches full capacity; suppose average cost for 23,501th student is $65 and 23,502th student is $64.

b.

Answer: Yes

This is the cost advantage, which indicates a decreasing cost with an increasing number of enrollment – more enrollment gives more reduction of cost till 30,000 numbers. Since such number is not yet been reached, the cost advantage is still there and the economics of scale is not fully exhausted.

Answer: Yes

It can grow slowly – the number of enrollments may be increased in coming years. The university has scope for improving as long as the utilized-capacity is below the full-capacity.