Fixed, Variable, and Average Costs
Midstate University Is Trying to Decide

Essay

Fixed, Variable, and Average Costs
Midstate University is trying to decide whether to allow 100 more students into the university. Tuition is $5,000 per year. The controller has determined the following schedule of costs to educate students: $$\begin{array} { | c | r | } \hline \text { Number of Students } & \text { Total Costs } \\\hline 4,000 & \$ 30,000,000 \\\hline 4,100 & 30,300,000 \\\hline 4,200 & 30,600,000 \\\hline 4,300 & 30,900,000 \\\hline\end{array}$$ The current enrollment is 4,200 students. The president of the university has calculated the cost per student in the following manner: $30,600,000/4,200 students = $7286 per student. The president was wondering why the university should accept more students if the tuition is only $5,000.
Required:
a. What is wrong with the president's calculation?
b. What are the fixed and variable costs of operating the university?