Econ 421: Economics of Reed College
Fall 2007
Assignment #2
Due: Wednesday, September 12

The president of Reed College has just received the following letter from Emmett L. Bashor, chief executive officer of Heavy Metal Foundries, Inc. and Reed alumnus. The president has asked you for advice in preparing a response. Your position should be informed by the materials that are on the reading list for Weeks 2 and 3 and by all the relevant information about Reed that you can find in the Compendium of Information, the budget information handed out last week, and the institutional research Web site at http://web.reed.edu/ir/. Your advice should address the writer's concerns about tuition, costs, and productivity on as many levels as possible. Be factual and persuasive, but concise; the president does not want to read more than one single-spaced page.

Dear President Diver:

I am writing to express my alarm at Reed's decision to increase tuition charges in excess of the inflation rate--yet again!! Our tuition now stands at $36,190, up from $22,180 a decade ago. During this decade, the consumer price index has risen by 27.2%, yet Reed tuition has increased an unconscionable 63.2%. At the same time, the endowment has doubled and annual giving has nearly doubled, providing more alternative revenue resources.

How can this be? Is anybody paying attention? Where is all this money going? In the heavy metal industry, our firm has survived by improving its productivity. Those whose productivity lags go out of business. Yet it seems that Reed's productivity is falling over time instead of rising. I come to this conclusion based on the indisputable facts that the college is educating about the same number of students, yet at a much higher cost. How can you believe that Reed can survive, let alone thrive, with declining productivity? At the rate the college is going, we'll soon be charging a million dollars for a Reed degree just like the one I got in 1960 for a few thousand! I hope we don't need to get to that point before college officials regain their sanity and begin to address cost and productivity issues.

Because my past arguments about costs and productivity seem to have fallen on deaf ears, I am planning to run for election as an alumni trustee on a platform of cutting costs and lowering tuition. Perhaps it will prove easier to get the attention of the decision-makers who are rocketing our college into oblivion as an insider than it has been as an alumnus. (You may note that my friends at Dartmouth College have certainly increased their influence in this way.)

Sincerely yours,
Emmett L. Bashor, '60