EFFECT OF CLASS SIZE ON ECONOMIES OF SCALE AND MARGINAL COSTS IN HIGHER-EDUCATION

The impact of class size on economies of scale and marginal costs in higher education is examined. A multiproduct translog cost function is estimated using data from a single university. The results indicate that failure to control for class size may lead to biased estimates of economies of scale and relative marginal costs. Evidence of constant returns to scale for schools that expand output holding class size constant is found and increasing returns to scale if class size is allowed to expand. The marginal cost of graduate students is found to be 4.3 to 8.98 times that of undergraduates.