Response to the following problem:
Midstate University is trying to decide whether to allow 100 more students into the university. Tuition is $5000 per year. The controller has determined the following schedule of costs to educate students:
Number of Students Total Costs
4000 $30,000,000
4100 30,300,000
4200 30,600,000
4300 30,900,000
The current enrollment is 4200 students. The president of the university has calculated the cost per student in the following manner: $30,600,000/4200 students = $7286 per student.
The president was wondering why the university should accept more students if the tuition is only $5000.
a. What is wrong with the president's calculation?
b. What are the fixed and variable costs of operating the university?