Question

The president of a college has been told that when they raised their tuition by 15 percent the previous year, total revenue from tuition remained unchanged. Assuming the change in revenue is due to the change in tuition only, the president could conclude that demand for that college, over that tuition range, must be:

Answer 1

demand for the college is equal to 1

Explanation:

- We know that the change in Total Revenue is only the function of change in tuition fee only.

- The change in tution fee is subjected to 15% last year multiplied by the corresponding change in demand for the college will lead to a change in total revenue.

- The relation can be expressed as:

ΔTR = Δ P *ΔD

Where,

ΔTR : Change in Total Revenue

Δ P : Change in tuition fee

ΔD : Change in demand.

- For TR to remain unchanged then ΔTR = 0. Hence,

ΔTR = 0 = Δ P *ΔD

- We are given a change in Δ P = 15%, so that means for ΔTR = 0, the change in demand ΔD = 0.

- ΔD = 0, also means that the elasticity of the demand curve is perfectly elastic or in other words the demand for the college is equal to 1.

Answer 2

= 1

Explanation:

The demand for that college will be equal to 1 or it can be said as unit elastic demand over the tuition range. This means that the demand for the college would move proportionately with the tuition range of that college, since the change in revenue is due to the change in tuition only.

Hope this helps.

Good luck and cheers.