The purpose of this study was to investigate the relationship between educational costs and educational output in two-year public community colleges. The research hypothesis was that small rural community colleges cannot produce the same educational output at either the same average or the same marginal cost as do those community colleges that operate on a relatively larger scale. The dependent variable was IEG (Instructional Educational and General) expenditures as reported to NCES (National Center for Educational Statistics). The independent variables were: (1) FTE enrollment, (2) MARKET (proportion of headcount enrollment to target population), and (3) DIVERSITY (proportion of the number of different curricula in which degrees, diplomas or certificates were awarded to the total number (70) of different HEGIS (Higher Education General Information Survey) curricula. A control variable, ADJAVSAL, was used to control for salary differences.

Using the 1980-81 HEGIS information as the primary data base, both linear and nonlinear total, average, and marginal cost functions were derived for seven institutional types of two-year public colleges and three composites.

Findings from the study lead to the conclusion that although economies of scale (defined as the excess of average over marginal cost) were achievable by all two-year public colleges, how these economies were spent was dependent on institutional size. For example, 194 small rural community colleges were found to add or delete educational programs having the same (not different) marginal cost @ $2,668/FTE. If comprehensiveness is equated with programs having different (not the same) costs, the findings indicate that small rural colleges were unable to convert their achieveable economies of scale into increased comprehensiveness. In contrast, all other two-year public colleges (other than medium large colleges) were found to have nonconstant marginal costs per FTE student.

The principal recommendation is that differential funding is needed to compensate for differences in achievable economies of scale between small rural community colleges and their larger counterparts. The continued denial of nearly half the states to compensate for economy of scale differentials of the magnitude confirmed by the present study may be equated to a denial of access to equality of educational opportunity for those served by small rural community colleges.