Question

1. In the lecture notes about higher education, there’s an example showing the net present value of getting a bachelor’s degree. This includes a box with some text that goes something like this, “Is This Poor Analysis a Result of the Instructors Laziness or His Ignorance? For a fun, in-class exercise, how many problems can you identify with the analysis presented above? There are at least two that I know of, excluding the issues presented below.”

A. For the student in question, there is an important cost of attending college that is not included in the calculations, although it is mentioned in the lecture notes. As a hint, the usual assumption is that a student who finishes in four years is going to school full time and not engaged in other things.

B. The cost of room and board is included as a cost of attending college. Should it be?

C. Oh, yeah, what is the marginal cost of having one more student in a class? Should the analysis of attending college be based on the average cost or the marginal cost of college attendance?

Answer 1

B) No, the cost of room and board should not be included as a cost of attending college as it is not the cost on the part of the students who are attending the college but it is the cost on the part of the college.

C) The marginal cost of having one more student in the class would be the attention given by the instructor to each of the student.

The analysis of attending college has to be based on the average cost of college attendance and not on the basis of marginal cost as the average cost is spread among the whole strength of the class and not just on the additional student's attendance.