Question

Suppose you are managing enrollments at CSUEB. You currently have 500 students in your BSBA program, but there is a proposition to increase the number of enrolled students. The fixed cost of the program is $1 million and the variable costs are $3,000 per student. Revenue from each student is $4,200. Your colleague looks at the average cost of each student ($5,000) and compares it to the average revenue of $4,200, and says since we are losing $800 on each student, enrollments should not be expanded. If you are interested in maximizing profit, should you listen to your colleague and keep enrollments at 500, or should you expand enrollments? Explain why.

Answer 1

as has been mentioned in the above question the average revenue from student is $4200 and the variable cost is $3000 so, as long as the average variable cost is being covered its always profitable to expand production ( in this case taking students) so here in this case the student intake should not be stopped at 500. it should be increased to maximise the profit.