The Economic Value of WTAMU Main Report

is measured in terms of total credit hour equivalents (CHEs) and expressed as a
percentage of the university’s current CHE production. Current student tuition
and fees are represented by p’, and state and local government support covers
C% of all costs. At this point in the analysis, it is assumed that the university
has only two sources of revenues: 1) student tuition and fees and 2) state and
local government support.
Figure A9.2 shows another important reference point in the model – where state
and local government support is 0%, student tuition and fees are increased
to p’’, and CHE production is at Z% (less than 100%). The reduction in CHEs
reflects the price elasticity of the students’ demand for education, i.e., the
extent to which the students’ decision to attend the university is affected by
the change in tuition and fees. Ignoring for the moment those issues concerning
the university’s minimum operating scale (considered below in the section
called “Calculating benefits at the shutdown point”), the implication for the
investment analysis is that benefits to state and local government must be
adjusted to net out the benefits that the university can provide absent state
and local government support, represented as Z% of the university’s current
CHE production in Figure A9.2.
FIGURE A9.2: CHE PRODUCTION AND GOVERNMENT FUNDING BY TUITION
AND FEES
Tuition and fees
p"
p'
D
Govt.
funding
(% of total)
100% C% 0% Z% 100%
CHE
production
(% of total)
To clarify the argument, it is useful to consider the role of enrollment in the
larger benefit-cost model. Let B equal the benefits attributable to state and
local government support. The analysis derives all benefits as a function of
student enrollment, measured in terms of CHEs produced. For consistency with
the graphs in this appendix, B is expressed as a function of the percent of the
university’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.
Appendix 9: Shutdown Point
102