Defining Cost and Price
THE COST COMMISSION’S REPORT has clearly recognized
the complexities of the cost issue for higher education and the confusion surrounding
the use of the term “cost”.
The distinctions the commission has made in defining “cost” to mean at least four
different things goes a long way in clarifying this term. The commission notes that
cost can mean: production cost; sticker price (posted tuition and fee price); total
cost of attendance (sticker price plus room, board, books, supplies, transportation,
etc.), and net price (sticker price less financial aid).
These definitions often are used interchangeably, and this imprecision in our use
of language tends to confuse the issues.
The production function for higher education involves the combination of labor and
capital each college and university employs to provide education. The relationship
of labor and capital in the production function has changed over time along with
the market basket of goods demanded by educational consumers in traditional educational
The production function for instruction as distinct from education has become significantly
more capital-intensive in recent years with the addition of more instrumentation
and technology per faculty member. The expectation that technology was going to increase
productivity in higher education instruction has not been realized in the traditional
institutions. As capital is added to the instruction function, increases in labor
also are required.
Institutions without walls are achieving productivity increases with the new technologies
and are operating on a very different production function from traditional institutions
of higher education and from the traditional parts of institutions.
The increasing cost of production of traditional education is motivating many traditional
institutions to diversify their product and offer more than one type of education
using different models. The University of Phoenix is making many institutions reexamine
their paradigms on the delivery of instruction and certainly is offering a no-frills
model. This institution operates with minimal facilities, no libraries and no student
services. It provides a product which appeals to many students and certainly offers
an alternative production function for instruction.
A second component in the cost of producing education for the traditional institutions
is the fact that the services students expect as a part of their education have grown
significantly. Extensive counseling and health services, career development services
and social programming supplied by the college are just a few of the services which
In addition, students’ expectations about the amenities of their physical environment
have increased enormously. Voice mail, cable television and internet connections
in residence hall rooms are being viewed as necessities by many prospective students.
STORY | FRONT PAGE
| NEXT STORY
© 1998 The National Center for Public Policy and Higher Education
about us |
center news |
reports & papers |
national crosstalk |
site managed by NETView Communications