The Economic Value of Main Report

appendix, B is expressed as a function of the percent of the college ’s current CHE production. Equation 1 is thus as follows:

1)

B = B (100%)

This reflects the total benefits generated by enrollments at their current levels.

Consider benefits now with reference to Z . The point at which state and local government support is zero nonetheless provides for Z% (less than 100%) of the current enrollment, and benefits are symbolically indicated by the following equation:

2)

B = B (Z%)

Inasmuch as the benefits in equation 2 occur with or without state and local government support, the benefits appropriately attributed to state and local government support are given by equation 3 as follows:

3)

B = B (100%) − B (Z%)

Calculating benefits at the shutdown point

Colleges and universities cease to operate when the revenue they receive from the quantity of education demanded is insufficient to justify their continued operations. This is commonly known in economics as the shutdown point. 54 The shutdown point is introduced graphically in Figure A9.3 as S%. The location of point S% indicates that the college can operate at an even lower enrollment level than Z% (the point at which the college receives zero state and local government funding). State and local government support at point S% is still zero, and student tuition and fees have been raised to p'''. State and local government support is thus credited with the benefits given by equation 3, or B = B (100%) − B (Z%). With student tuition and fees still higher than p''', the college would no longer be able to attract enough students to keep the doors open, and it would shut down.

54 In the traditional sense, the shutdown point applies to firms seeking to maximize profits and minimize losses. Although profi t maximization is not the primary aim of colleges and universities, the principle remains the same, i.e. , that there is a minimum scale of operation required in order for colleges and universities to stay open.

The economic value of Monroe Community College

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