Question

A major issue of contention at many colleges concerns the cost of meals that is rebated when a student does not sign up for the meal plan. The administration usually says that it should rebate only the marginal cost of the food alone, which it calculated at, say, $1.25 per meal. Students say that the marginal cost should include more costs, such as the saved space from fewer students using the facilities and the reduced labor expenses on food preparation. This can raise the marginal cost to $6.00.

• Who is correct, the administration or the students?
• How might your answer differ if this argument were being conducted in the planning stage before the dining hall is built
• If you accept the $1.25 figure of a person not eating, how could you justify using a higher figure of about $6.00 for the cost of feeding a guest at the dining hall, as many schools do?

Answer 1

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Q. Who is correct, the administration or the students?

The administration is correct in rebating only the marginal cost of food. This is because the administration has spent thousands of dollars on the physical infrastructure and the capacity to serve a large number of students.

Even if a few students do not sign up for the meal plan, these costs will still be incurred. Only the variable costs will be saved, thus only marginal costs of food are being rebated.

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Q. How might your answer differ if this argument were being conducted in the planning stage before the dining hall is built?

The administration could have been better prepared before the construction began, if they knew that a large number of students will not utilize the dining facility. They could have made the facility a lot smaller, and incurred fewer fixed costs.

This would give the administration the flexibility of allowing only a fixed number of students to sign up for the plan. The whole issue of - collecting the fees and then providing a rebate - could have been avoided.

However, students would not get the flexibility of changing their minds every now and then.

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Q. If you accept the $1.25 figure of a person not eating, how could you justify using a higher figure of about $6.00 for the cost of feeding a guest at the dining hall, as many schools do?

The $1.25 figure has been calculated keeping in mind the number of students in the college, average capacity utilization, and the variable and fixed costs required to serve the students.

This is a much lower price than the market price, as it doesn't involve huge margins.

For an outsider, the student subsidy should not be applicable. This is because the student facility could be misused by outsiders if they feel that prices are much lower in the college.

Further, it is not possible to estimate how many outsiders will visit the canteen for a meal. Thus, setting a lower price for them is not feasible.

The profits generated from outsiders will be used for the betterment of students. Hence, a higher price to outsiders is justified.