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# Fixed, Variable, and Average Costs

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 = \$7,286 per student. The president was wondering why the university should accept more students if the tuition is only \$5000.

What is wrong with the president's calculation?

What are the fixed and variable costs of operating the university?

#### Solution Preview

From the data given, we see that the total costs increase by \$300,000 per block of 100 students. We also see that adding 100 more students will generate \$500,000 (100 X \$5000) more revenue. Since there is an increase of \$300,000 cost per block of 100 students, it can be deduced that fixed is \$200,000 ...

#### Solution Summary

The solution determines the fixed, variable, and average costs.

\$2.19