The purpose of this study was to estimate the marginal costs of instruction in several types of public colleges and universities in the United States. If marginal costs vary with enrollment size or differ from average costs, then inadvertent changes in the financial status of those institutions are likely to accompany changes in their enrollments, granted current funding patterns. Long-run total cost functions were developed within a microeconomic framework. The unit of analysis was the institution. A variety of additive and multiplicative functions were tested, as no particular functional form was assumed to be correct a priori. The dependent variable was instructional expenditures; the primary independent variables included lower, upper, and graduate division enrollments, while control variables included average faculty salary, a state price index, sponsored research expenditures per faculty, dummy variables for whether the institution is in a formula-funding state and whether it is a traditionally black institution, and a program vector consisting of the proportion of degrees earned in a representative set of curricular areas. The primary data source was the 1977-78 Higher Education General Information Survey published by the National Center for Higher Education Statistics. The cost functions were estimated using ordinary least-squares regression. Four types of institutions offering primarily a baccalaureate or higher degree and three types of two-year institutions were analyzed. The estimated marginal cost curves were interpreted as reflecting average institutional efficiency. Cost behavior differed considerably by type of institution and by student level with respect to the estimated marginal costs at mean enrollment and the variability of estimated marginal costs across the range of observed enrollments, i.e., the shape of the marginal cost curves. Overall, the results of the study support the concern that current funding patterns for public higher education, with their reliance on average costs, may yield other than intended results when enrollments change substantially; but this implied incongruence varied by institutional type and by student level within institutional types.

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