Average Costs

The exercise in the previous section highlights the importance of average costs in the economics of ODL.

Definition

Average costs are simply the total costs of a course divided by the total number of students.

It is important to calculate average costs over the lifetime of a course rather than on a year-by-year basis. This is because some costs, such as those for developing materials, are only incurred once even though the course may run for a number of years without revision. The total costs over the economic life of the course need to be divided by the total number of students expected to enrol for the course during the same period.

The Average Costs equation is as follows:

AC_s = TC/TN_s

Where:

AC_s = average cost per student

TC = total costs

TN_s = total number of students

The average cost per student behaves in a different way from the total cost of a course. Whereas the total cost of a course continues to rise as student numbers increase, the average cost per student actually falls. This is because the fixed costs of the course can be spread amongst a greater number of students, even though the variable cost per student remains unchanged.

Activity

Exercise 2.2 Open the Hülsmann CD-ROM. Select Section 3 – Elements of cost analysis. Go to the bottom of the first page of this section and select Part 2 – Fixed & variable costs. Scroll down to Activity A10 – Exploring the Average Costs Equation and click the purple letters that read ‘Click here’. Follow the instructions in the MS Excel worksheet.

Self Assessment

Copy out the table below on a blank sheet of paper. Decide how changes in student numbers will affect fixed and variable costs, both in total and on an average (per student) basis and write your answers in the blank cells of the table you have drawn. Costs will either Increase, Decrease or Stay the Same.

		When Student Numbers Grow	When Student Numbers Decline
Fixed Costs	In Total
	Average (per Student)
Variable Costs	In Total
	Average (per Student)

Source: Adapted from Rumble, 1997, Figure 5.2, page 37.

You can check your work by clicking on Answers to Self Test.