Midstate University is trying to decide whether to allow 100 more students into the university. Tuition is $5,000 per year. The controller has determined the following schedule of costs to educate students:

Number of Students

Total Costs

4,000

$30,000,000

4,100

30,300,000

4,200

30,600,000

4,300

30,900,000

The current enrollment is 4,200 students. The president of the university has calculated the cost per student in the following manner: $30,600,000/4,200 students = $7286 per student. The president was wondering why the university should accept more students if the tuition is only $5,000.

Required:

a. What is wrong with the president's calculation?

b. What are the fixed and variable costs of operating the university?

Hint: Address the Problem from a Variable, Fixed, and Average Cost Standpoint!