91 Appendix 9: Shutdown point Appendices Calculating benefits at the shutdown point Colleges and universities cease to operate when the revenue they receive from the quantity of education demanded is insufficient to justify their continued operations. This is commonly known in economics as the shutdown point.47 The shutdown point is introduced graphically in Figure A9.3 as S%. The location of point S% indicates that the college can operate at an even lower enrollment level than Z% (the point at which the college receives zero state and local government funding). State and local government support at point S% is still zero, and student tuition and fees have been raised to p’’’. State and local government support is thus credited with the benefits given by equation 3, or B = B (100%) − B (Z%). With student tuition and fees still higher than p’’’, the college would no longer be able to attract enough students to keep the doors open, and it would shut down. Figure A9.4 illustrates yet another scenario. Here, the shutdown point occurs at a level of CHE production greater than Z% (the level of zero state and local government support), meaning some minimum level of state and local government support is needed for the college to operate at all. This minimum portion of overall funding is indicated by S’% on the left side of the chart, and as before, the shutdown point is indicated by S% on the right side of chart. In this case, state and local government support is appropriately credited with all the benefits generated by the college’s CHE production, or B = B (100%). 47 In the traditional sense, the shutdown point applies to firms seeking to maximize profits and minimize losses. Although profit maximization is not the primary aim of colleges and universities, the principle remains the same, i.e., that there is a minimum scale of operation required in order for colleges and universities to stay open. Figure A9.3: Shutdown point after zero government funding Tuition and fees D p' CHE production Govt. funding (% of total) p" p"' 100% C% 0% 100% S% Z% Figure A9.4: Shutdown point before zero government funding Tuition and fees D CHE production Govt. funding (% of total) 100% C% 0% 100% Z% S% S%
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