Question

Let’s examine the history of LSUS undergraduate enrollment vs. its tuition and fees. Download the “A3Q1 LSUS enrollment data” Excel file (in CSV format if you don’t have Excel); in it you will see historical information on LSUS undergraduate enrollment, total credit hour production, and tuition and fees. (If you wish, you can verify or look up additional information here, here, and here.)

Calculate annual elasticities for both types of quantity variables (i.e., you will have an elasticity of price vs. headcount, and one of price vs. credit hour). You will get an error message in your calculations when the tuition doesn't change from 2006-2007 and 2016-2017, since the elasticity calculation will be trying to divide by zero; just delete those error values in your Excel table so that the cells are blank. The first headcount elasticity will be calculated based on the 2004 and 2005 values of tuition and headcount and should be about 0.159; the first credit hour elasticity will also be based on the 2004 and 2005 values and should be about -0.348). Calculate the average annual elasticity for headcount (from 2004-2017), and the average annual elasticity for credit hour (from 2004-2017).

Many administrators argue that, to increase revenue to LSUS to cover budget shortfalls, tuition should be raised. Comment on this suggestion, using the evidence you’ve uncovered.

Year	undergrad enrollment	total LSUS credit hour production	undergrad tuition and fees
2004	3,910	101,868	$1,545
2005	3,940	100,181	$1,621
2006	3,594	92,486	$1,667
2007	3,556	92,123	$1,667
2008	3,903	94,639	$1,751
2009	4,220	101,972	$1,867
2010	4,058	98,137	$2,062
2011	4,134	98,372	$2,247
2012	4,124	93,163	$2,472
2013	3,674	85,292	$2,803
2014	3,202	87,907	$3,084
2015	2,775	91,021	$3,355
2016	2,587	94,077	$3,417
2017	2,637	115,340	$3,417

Answer 1

Answer

To calculate elasticity of demand we will use the following formula

PE = (ΔQ/ΔP) * (P/Q)

where

P = Price

Q = Quantity

$\Delta$P = Change in price

$\Delta$Q = Change in quantity

The calculations are shown in excel sheet below

Elasticity for price vs headcount

Elasticity AP ΔQ Undergrad enrollment (Headcount) undergrad tuition and fees L(x) - L(x-1) K(x) - K(x-1) PE (AQ/AP)* (P/Q) Year 3,910 2004 $1,545 3,940 0.1624 $1,621 $76 2005 30 $1,667 $46 2006 3,594 -346 -3.4888 2007 $0 3,556 $1,667 -38 $1,751 $84 2008 3,903 347 1.8533 $116 317 2009 4,220 $1,867 1.2090 2010 $2,062 $195 4,058 -162 -0.4221 $185 2011 4,134 $2,247 0.2233 76 $2,472 $225 -0.0266 2012 4,124 -10 $331 2013 3,674 $2,803 -450 -1.0372 $3,084 $281 2014 3,202 -1.6178 -472 2,775 2,587 $271 2015 $3,355 -427 -1.9050 $62 2016 $3,417 -188 -4.0051 2017 2,637 $3,417 50

Elasticity for price Vs credit hour

Elasticity K(x) - K(x-1) PE (AQ/AP) * (P/Q) AP Q P AQ L(x) - L(X-1) Total LSUS credit hour production undergrad tuition and fees Year 2004 101,868 $1,545 100,18 92,486 $76 2005 $1,621 -0.3592 -1,687 $1,667 $46 -3.0152 2006 -7,695 92,123 $1,667 $0 2007 -363 94,639 $84 0.5542 2008 $1,751 2,516 1.1574 101,972 $116 2009 $1,867 7,333 $195 -0.4132 2010 98,137 $2,062 -3,835 98,372 $2,247 $185 2011 0.0290 235 $225 2012 93,163 $2,472 -0.6143 -5,209 85,292 $331 2013 $2,803 -0.7815 -7,871 $281 2014 87,907 $3,084 2,615 0.3265 91,021 $3,355 $271 3,114 2015 0.4235 $62 1.7903 2016 94,077 $3,417 3,056 $0 2017 115,340 $3,417 21,263

Average annual elasticity can be calculated using average of these elasticity. Since elasticity of 2017 and 2007 is undefined so we don't include them in our solution

Average annual elasticity of price vs head count = -0.7546

Average annual elasticity of price vs credit hour = -0.0752

As we can see that the elasticity is less than -1 which means that for both head count and credit hour the decrease in the number is less then 1% when the price increase by 1%. Thus, the demand is inelastic and hence management can increase revenue by increasing the tuition fee.