Big State X charges in-state and out of state students 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 is in-state tuition. Out of state students pay $4,500 a term and there 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 the price elasticity for each type of student.
b.) Assume teh 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?