Big State U charges in-state and out-of-state student's different tuition rates. In-state students pay $2,000 a term and respond according to the following demand equation:
Qi = 25,000 - 3Ti
Where Qi is in-state student enrollment and Ti is in-state tuition. Out-of-state students pay $4,500 a term and their demand is:
Qo = 45,000 - 8To
Where Qo is out-of-state enrollment and To is out-of state tuition.
a. Calculate the number of each type of student which will enroll and the total enrollment at Big State. Calculate price elasticity for each type of student.
b. Assume the marginal cost for students is $3,000 per student. Is Big State charging an optimal tuition rate for instate students? Explain.
c. Assume the school wishes to institute these tuition changes. What might be the response of students? What about state taxpayers?