Elasticity

Maximum Revenue

Dora Massey

Instructor Robert Gordon

ECO204 Principals of Microeconomics

October 19, 2014

In an attempt to raise tuition and revenue NSU has increased the tuition for students. In this paper I will try to explain how this will affect their revenue. And the amount of students that choose the school.

Students act as consumers, and facing increasing fees and the sacrifices that go with trying to meet financial obligations, they will make better decisions and value of their time. While technically they might not be consumers, but universities are treating them as such which gives them better retention rates and reputation. Students have the power to either accept or deny the tuition rates of a university.

Brand loyalty can influence price elasticity of demand, you need to develop a strong loyalty so consumers will be more willing to tolerate a price increase. According to Amacher & Pate (2013) “demand for a product that has little or no brand loyalty is likely to be more elastic, an increase in price could lead to a reduction of quantity demanded as buyers switch to available substitutes”.

Tuition elasticity measures the increase or decrease of students, it is the percentage change in enrollment divided by the percentage change in cost. The higher the ratio is the more students will think about going to college. Universities rely on tuition for a large portion of their income, if tuition elasticity is grater than 1 and students are price sensitive, then an increase in tuition will result in a decreasing enrollment and revenue.

Revenue and profits are quadratic in nature. According to...