Leveraging marginal rule in business pricing decision

Assume you are a new business analyst hired at UOP.  The Admissions Director (AD) wants to determine the optimum number of students for each ECO561 class.  You are provided with the following data 

 

         Tuition is $1250 per student. 

 

         Instructor Pay $2500

 

         Other incidental costs – $1000.00

 

  Total cost increases by 10% per each additional student

 

  • How many students will you recommend to the AD? 
  • What would be the profit for the given number of students? 
  • Is this profit maximizing? 

 

Now assume Total Cost increases by 15% per additional student

 

  • How many students will you recommend to the AD? 
  • What would be the profit for the given number of students? 
  • Is this profit maximizing? 

What is the relevance of the marginal rule in both decision making?

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