This paper contains a management model for pricing and enrollment planning. It is assumed that the institution maximizes its long run quality reputation through the accomplishments of its alumni. The model yields rules for optimal pricing decisions with respect to the “sticker price,” the average scholarship per student, and enrollment. It identifies the optimal mix between the sticker price and the average scholarship, a measure of the institution’s financial ability to support students, and an average cost pricing rule. The model also reveals that pricing rules based on the theory of the firm are inappropriate for higher education and can lead to financial distress.
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