BUSINESS

Let’s examine the history of LSUS undergraduate enrollment vs. its tuition and fees. Go to this link (http://www.lsus.edu/offices-and-services/institutional-effectiveness-and-planning/fact-book) and look at the PDF “FACT BOOK 2015.” Collect two types of quantity data: the Fall Headcount for undergrads on pg. 6 (9 of the PDF), and the Total (summer, spring, and fall) student credit hour production on pg. 11 (8 of the PDF). Headcount data goes from 1984-2015, but credit hour data only goes from 1986-2015.

Next, go here to get tuition data: http://www.lsus.edu/offices-and-services/institutional-effectiveness-and-planning/lsus-data-profile, and look at the PDF “LSUS Data Profiles 2011-2012.” The price (undergraduate fall tuition and fees) data is on pg. 106. You will only need from 1984 through 2011; for the remaining years, use 2012 = $2,472, 2013 = $2,803, 2014 = $3,084, and 2015 = $3,355.

Calculate annual elasticities for both types of quantity variables (i.e., you will have an elasticity of price vs. headcount, and one of price vs. credit hour. You will get an error message in your calculations a few times when the tuition doesn’t change, since the elasticity calculation will be trying to divide by zero. Just delete those in your Excel table. The first headcount elasticity will be calculated based on the 1984 and 1985 values of tuition and headcount and should be about -0.043; the first credit hour elasticity will be based on the 1987 and 1988 values and should be about 0.394). Calculate the average elasticity for headcount (from 1985-2015), and the average elasticity for credit hour (from 1988-2015).

Question 1

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The headcount elasticity between the years 2010-2011 is approximately equal to

Select one:

a. 0.216

b. -0.394

c. -0.357

d. 4,134

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Question 2

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The average (over all years) headcount elasticity is approximately _______. Demand in terms of headcount would be considered ________.

Select one:

a. 2,775; elastic.

b. -0.176; inelastic.

c. -5.68; elastic.

d. -1.70; elastic.

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Question 3

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The average (over all years) credit hour elasticity is approximately _______.

Select one:

a. -0.2245; this better demonstrates the law of demand since tuition is on a per-12-credit-hour basis, so credit hour is a more appropriate quantity variable to use than headcount.

b. -4.45; this is unexpected since credit hour demand should be inelastic.

c. 0.414; this is unexpected since the relationship between tuition and credit hours should be negative according to the law of demand.

d. 0.394; this is unexpected since the value is too small. Demand should be considered elastic and thus the value should be greater than 1.0.

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Question 4

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Many administrators argue that, to increase revenue to LSUS to cover budget shortfalls, tuition should be raised. The credit hour elasticity estimate suggests that

Select one:

a. tuition should only be decreased, since the elasticity value is negative. Raising tuition will only decrease the amount of revenue LSUS enjoys.

b. increasing fees may reduce credit hours, but not by much since credit hour demand is inelastic (in the data analyzed above). Raising fees hypothetically would increase LSUS revenue.

c. raising tuition will increase credit hours, since the elasticity is unexpectedly negative.

d. raising fees would be detrimental to LSUS’ budget, since the law of demand says that fewer credit hours will be pursued as a result. Fewer credit hours would mean less revenue for LSUS.

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Information

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Use the following data to answer the questions below.

P Q
$130 78
$110 155
$90 246
$70 318
$50 397

Question 5

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Using OLS, the estimated inverse demand function (P = f(Q)) is

Select one:

a. Q = 149.56 – 0.25P

b. P = 599.65 – 4.01Q

c. Q = 599.65 – 4.01P

d. P = 149.56 – 0.25Q

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Question 6

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Using algebra to transform the indirect demand function, the direct demand function (Q = f(P)) is

Select one:

a. Q = 118.67 – 52.18P

b. Q = 1.26 + 0.0048P

c. P = 599.65 – 4.01Q

d. Q = 599.65 – 4.01P

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Question 7

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Using calculus to determine dQ/dP, construct a column which calculates the point-price elasticity for each (P,Q) combination. What is the point price elasticity of demand when P=$90?

Select one:

a. -6.682

b. -0.883

c. -1.467

d. -0.505

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Question 8

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