Marginal Cost

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Tutorial.png Unit 6 

Introduction | Projecting Student Numbers | What do we need to account for? | Treating the Capital Costs of Materials Development | Marginal Cost | Crossover Point

One advantage of depreciating or ‘writing off’ the capital investment in materials development for the expected life of a course is that the fees paid by students (in a commercial concern) or other income secured through grants and subsidies (in a not-for-profit institution) should recover the full cost during the period. If the course is extended beyond its projected life, there is no need to set aside additional funds from income to cover the loss of value through depreciation, and the only expenditure required is for operating costs. This can result in a considerable reduction in the average cost of running the course for every year beyond its planned life.

A closely related concept is that of marginal cost.

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The marginal cost is additional expenditure incurred to produce one more unit of a product or service.

For example, if student enrolments for a course exceed the number estimated, then the marginal cost of accommodating each additional student involves only variable expenditure for printing and distributing study materials, marking assignments, etc. This is because the fixed costs of materials development and course presentation have already been accounted for in the calculations using projected student numbers. No additional fixed costs are incurred to accommodate additional students once the projected numbers have been reached.

However, this approach to marginal costs assumes that any students above the projected number can be accommodated within the institution’s existing capacity, which represents the relevant range for its semi-variable costs. In other words, you need to have unused study materials that can be given to additional students and there must be spare places available in tutorial groups. By way of contrast, when additional students cannot be accommodated without making additional provision (such as ordering a new print run for study materials or establishing a new tutorial group), the marginal cost will increase substantially.

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Exercise 6.4 Calculating the Marginal Cost of Adding one Student
Go to Exercise 6.4 - Worksheet and follow the instructions.