Submission Questions - ECONS 5103

4 Found helpful • 6 Pages • Essays / Projects • Year: Pre-2021

ITdesign is a company which provides specialized training in Computer Graphics for architects. It is preparing to provide such a course. It has estimated its costs as follows: Preparation of program syllabus, advertising, preparation and mailing of brochures and application forms, processing of applications: $30,000. Payment to Instructor for provision of course: $60,000. Administration, materials, and supplies: $2,000 per student. ITdesign’s energy (electricity, etc) requirements are reliably estimated to increase over normal load by $1000 per student if it provides the course. The advertising material guarantees that the maximum number of students in the course will be 20. The market for such courses is very competitive and ITdesign must provide the course at a tuition fee of $15,000 per student. ITdesign owns the venue for the course - a fully equipped computer laboratory with desks for 30 students. If ITdesign does not use the venue, it can be leased to another training company for the period for $90,000. The lease requires the other company to pay any excess over normal load of energy costs. If insufficient students enrol, the course can be cancelled, saving all costs other than the $30,000 spent prior to enrolments. (a) Define and explain the following concepts using ITdesign’s costs as examples: (i) Opportunity Costs; (ii) Fixed Costs; (iii) Sunk Costs; (iv) Variable costs (v) Marginal Costs (b) Find the maximum (economic) profit ITdesign can make from providing this course. Explain your answer. Why is the profit maximising rule MR = MC not applicable in this case? (c) Find the number of student enrolments for ITdesign to break even (cover all costs). Explain your answer. (d) Find the cut-off number of enrolments for cancellation of the course. Explain your answer. (e) Are there any other costs and benefits that you think should be considered in deciding whether to run the course? (f) What strategies can you suggest to improve ITdesign’s profits. 2 (a) (i) Opportunity Cost is the true cost of supplying the course. It should include not only costs explicitly paid out (the $30,000 preparation costs, the $60,000 for the instructor, and the $3,000 per student administration, materials and energy costs) but also the foregone lease income for the venue, $90,000.

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