Facing stiff competition, Hendrix College, a small liberal arts institution in C
ID: 1216432 • Letter: F
Question
Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided 10 years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships, and service projects. It also raised tuition and fees 29%, to $21,636 .... As a result, 409 students enrolled in the freshman class in 2006, a 37 percent increase. “What worked was the buzz,” said J. Timothy Cloyd, the Hendrix president. “Students saw that they were going to get an experience that had value, and the price positioning conveyed to them the value of the experience.”
a. How would you classify the market for a college education? Perfectly competitive? Somewhere between perfectly competitive and a monopoly? Explain.
b. Do you think Hendrix College is a price taker or a price setter? Why?
c. How does their demand curve compare to a monopolist’s demand curve? A perfectly competitive
firm’s demand curve?
d. Draw Hendrix’s D, MR, MC curves and show their profit-maximizing rate of output.
e. What do you think happens to the demand for a Hendrix College education if other small liberal arts colleges adopt a similar curriculum? What do you think happens to their demand curve in the long run if more firms enter into the market? How will this affect their profit-maximizing rate of output and the price they can charge?
Explanation / Answer
a. Perfectly competitive because there is presece of many college in the state and all colleges somewhere charge same price for the education of same stream. If one college charge higher price then students went to other colleges.
b. Hendrix College should be price taker as college fees is determined by the demand and supply of colleges in the economy. When students are huge as compared to colleges then fees will be high and on the other hand, if students are few and colleges are huge then fee will be low.
c. Demand curve of monopolistic firm is downward sloping because change in price changes the demand of commodity but under perfect competition, demand curve is parallel to x-axis. Increase in the price under perfect competition reduces the demand to zero.
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