Suppose an elementary school has 1,200 students and that fixed costs total $5 million per year and variable costs increase by $4,000 for each student that enrolls. In two years time, the school authority anticipates increasing student enrollment from 1,200 to 1,500. To accommodate the enrollment some fixed cost items will increase to $7 million.
a. Use this information to determine the marginal cost of the prospective increase in student enrollment. Be sure to show your work and highlight your final response.
b. Draw a graph which reflects the average cost per student under the assumption that the relevant range includes the enrollment increase. Be sure to plot cost on the vertical axis and the number of students on the horizontal axis. Make sure that both axes are labeled appropriately.