Who Got a Good Deal? — Companion Page

Companion to the video “I Was Paid $5,000 to Teach a College Class. Who Got a Good Deal?”

This page has the full math, the assumptions behind it, the definitions, and exercises. It also has prompts you can give an AI tutor.

The numbers are rounded, and the page labels each one:

• Recollection: what I remember from teaching around 2020. My notes from that semester are missing, so nothing here comes from records.

• Assumption: a round number chosen for illustration. It is not a verified fact about any university.

Work through the exercises before you check the answers at the bottom.

1. Key terms

Opportunity cost. The value of the best alternative you give up when you choose something. It is not the sum of every alternative, only the best one. It can be money, time, or anything else you value.

Explicit cost. A cost you actually pay, such as a Metro fare or a parking bill.

Implicit cost. A cost you bear without writing a check. Examples are the evening you give up or paid leave you use.

Nonmonetary benefit. Something you value that doesn’t come as money. Examples are enjoyment, learning, and practice explaining ideas.

Benchmark. A reference number used for comparison. A benchmark is not proof of what you actually gave up. An hourly equivalent of a salary is a benchmark.

Salary equivalent vs. personal value. Three hours of leave at $75 an hour has a salary equivalent of $225. What those three hours are worth to you as time off can be higher or lower.

Sunk cost. A cost already paid that you cannot recover. Once a course is prepared, the first-time preparation is sunk. It shouldn’t drive the decision to teach it again, although the easier second semester should.

Revealed preference. What your choices show about what you value. If you turn down $75 an hour to earn $40, your choice says something about how you value the difference.

Compensating differential. A difference in pay that makes up for differences in how pleasant, risky, or rewarding jobs are. People often accept less money for work they enjoy.

Voluntary exchange. A deal both sides agree to. Each side expects to be better off, so both can come out ahead.

Sticker price. The published tuition.

Net price. What a student actually pays after grants, scholarships, and discounts.

Allocation. Dividing a total, such as annual tuition, across parts, such as courses, using a rule you choose. Different rules give different answers.

Marginal cost. The additional cost of doing one more unit, such as one more class section or one more hour in a room.

Incremental (marginal) revenue. The additional revenue caused by doing one more unit. If students would pay the same tuition with or without a particular class, that class’s incremental revenue may be close to zero.

Average vs. marginal. An average spreads a total evenly. The marginal amount is what changes when you add or remove one unit. They are often very different.

Revenue, cost, profit, surplus.

• Revenue is money coming in.

• Profit is revenue minus all costs, not just some of them.

• Surplus is the term nonprofits often use when revenue exceeds costs. A nonprofit has no owners who receive it.

Assumption. A number or condition you treat as true for the sake of the calculation. Write it down so someone else can challenge it.

Sensitivity analysis. Changing one assumption at a time to see how much the answer moves. If a small change flips your conclusion, the conclusion is fragile.

2. My side of the deal

2.1 Hours (recollection, rounded)

Notes:

• Classes met for about 15 weeks. With holidays and study periods, the semester stretched over 16 or 17 calendar weeks.

• "Extra commuting" means travel beyond my normal workday commute.

• Office hours overlapped with preparation because I could prepare while waiting for students.

• Because the small tasks aren’t counted, 120 hours is a floor, not a precise total.

2.2 Hourly pay

• Classroom hours only: $5,000 ÷ 45 = $111.11 per hour

• All counted hours: $5,000 ÷ 120 = $41.67 per hour

The video says “roughly forty dollars an hour, before taxes.” That estimate holds if the small tasks added a few hours, or if transportation cost a couple of hundred dollars, or both. I didn’t keep a record of transportation costs.

Sensitivity table: dollars per hour after transportation costs. This is pay minus transportation costs, divided by hours.

Across reasonable assumptions, the rate stays between the mid-thirties and low forties.

2.3 The first time is different

The first time I taught a course, preparation took about three hours per class meeting. That is 90 hours of preparation instead of 30.

Suppose office hours were again absorbed into preparation time and everything else stayed the same. The total becomes about 180 hours:

$5,000 ÷ 180 = $27.78 per hour

That first semester works like an investment. Much of the preparation carries over to later semesters, which is why the second time pays better per hour.

2.4 Taxes

Both the $40 teaching rate and the $75 benchmark below are before taxes, so comparing them is consistent. Extra income is taxed at your highest rate, so the after-tax value of an extra dollar earned can be well below a dollar. I haven’t calculated my actual rate.

2.5 Opportunity cost of evening time

Benchmark (assumption). Suppose my regular salary was $150,000 a year.

• $150,000 ÷ 2,000 hours = $75 per hour

• Using 2,080 hours (40 hours × 52 weeks) instead gives $72.12. I rounded to $75 using 2,000 hours.

I couldn’t sell my evenings to my regular employer. The realistic alternatives were:

What my choice reveals (under stated assumptions). Suppose the $75 part-time work was actually available for the same hours, and was otherwise similar. Then choosing teaching at about $40 means I valued what teaching gave me beyond pay at least:

($75 − $40) × 120 hours ≈ $4,200 for the semester

Weaknesses in that estimate:

• The other job might not have been available, or not on those evenings.

• The other job would have its own commute, hassle, and enjoyment, or lack of it.

• If the best alternative was the evening off rather than paid work, the comparison changes completely.

2.6 Paid vacation for the final exam

• I had to take vacation from my regular job to proctor the final.

• My salary didn’t change, but the leave was no longer available for a trip or a day off.

• If I left that job, unused leave would be paid out. So the leave also had a cash value: 3 hours × $75 = $225 at the benchmark rate.

Caveats:

• A payout happens later, at whatever my pay rate is then.

• Some employers cap how much leave you can carry over. Leave above a cap can be lost.

• The actual leave taken may have been more than three hours, for example a half day that included travel.

2.7 Small cash costs

The costs were Metro fares and parking for about 31 round trips: 30 class meetings plus the final. A small cost is still a cost. The question is how much weight it deserves in the decision.

2.8 Nonmonetary benefits (recollection)

• Staying current with textbooks.

• Practice explaining ideas clearly.

• Seeing how students think: what they understood, what they questioned, and where an explanation fell apart.

3. The university’s side

Everything in this section is an assumption for illustration. None of it comes from any university’s accounts.

3.1 Tuition allocated to one class

Assumption: tuition is $60,000 a year.

The video uses 20 students and four or five courses a semester, which gives $120,000 to $150,000.

Three courses a semester is a common full-time load for graduate students. Some schools bill part-time students per credit instead of charging a flat annual rate.

3.2 The subtraction

This remaining amount is not profit. The university has other costs.

3.3 Four different numbers people mix up

1. Allocated tuition. Sticker price divided across courses. This is what the table calculates.

2. Collected tuition (net revenue). What students actually paid after financial aid and discounts. It is often lower.

3. Incremental revenue. What the university gains because this particular section exists. Suppose tuition is a flat rate across a range of credits, and students would take another course instead. Then this section may add little or no revenue on its own.

4. Aggregate revenue. Across the whole university, tuition does pay for courses. The difficulty is deciding how much of the total belongs to any single section.

A student might reasonably say the university gets $120,000 from the class. The more accurate statement is that $120,000 is one way of allocating tuition to the class, and it is not the class’s actual or incremental revenue.

3.4 The classroom allowance

• The $5,000 comes from a rough intuition: about $100 an hour × 45 hours = $4,500, rounded up. It is not a rental quote.

• If a suitable room would otherwise sit empty, the marginal cost of using it may be much lower. It might be just lights, cleaning, and wear.

• If rooms are scarce, using one gives up another use. That is an opportunity cost even if no one pays rent.

• Don’t count the room twice. If you later subtract “facilities” or “maintenance,” remove the part already covered by this allowance.

3.5 Other costs, other revenue

• The costs include libraries, technology, student services, administration, maintenance, and the staff who schedule courses and keep records.

• Someone has to decide how to divide shared costs among classes. Different rules give different answers.

• Some services have their own charges and revenue, such as housing, dining, parking, and some fees. Don’t assume tuition funds every service in full.

• Universities can also have research grants, donations, and endowment income.

• Some courses may subsidize others. A large section can bring in more allocated tuition per instructor than a small seminar or a lab.

3.6 The full-time comparison

Assumption: an assistant professor earns $120,000 a year in salary.

Caveats:

• This assigns the whole salary to teaching. Professors also do research, advising, and other service.

• Salary excludes employer-paid benefits and other employment costs.

• Faculty salaries are often quoted on a nine-month basis.

• Even so, $30,000 is 20–25% of the $120,000–$150,000 allocated to the class.

3.7 Why would anyone teach for $5,000?

One possible explanation: some instructors have other jobs and value teaching for reasons beyond the pay. The university doesn’t have to pay for what someone is willing to give. This is a hypothesis to test, not an established finding.

4. Exercises

For each one, write down your assumptions first. Then do the math. Then list what you would need to know to be more confident.

Exercise 1: What did I leave out?

• Name at least three costs or benefits my calculation left out.

• Estimate each one in hours or dollars.

• Recalculate my hourly rate. Did the conclusion change?

Exercise 2: The TA offer

I offer you a job as my teaching assistant:

• Offer A: $2,000 for a 15-week semester. You run a one-hour review session and hold one office hour each week. The room is at the edge of campus.

• Offer B: $20 an hour.

Tasks:

1. List every kind of work the job might involve, including work I didn’t mention.

2. Estimate your total hours. Do you have to attend my lectures? How long is the walk? How much email?

3. Calculate Offer A’s effective hourly rate using scheduled hours only, then using your total estimate.

4. For Offer B, decide which hours you think would be paid, and calculate your pay.

5. What questions would you ask me before choosing?

6. What is your best alternative use of those hours? Would you take either offer?

Exercise 3: The university’s side at a real school

1. Pick a university and find its published tuition for one year. Record the source and the year.

2. Look for its average net price. Colleges publish net price calculators, and federal college data sites report averages.

3. Redo the tuition-per-course table using its numbers.

4. Which of the four numbers in Section 3.3 did you calculate? Which would you need records to know?

Exercise 4: What is the course worth? What is the degree worth?

1. Worth it compared with what? Name at least two realistic alternatives to taking this course, and two to earning this degree.

2. List financial and nonfinancial benefits of each.

3. Explain why one course’s value is not simply one-eighth of annual tuition.

4. How would the answer differ for two different students?

5. Using an AI tutor

These prompts ask the AI to guide your thinking, not give answers. Paste the set-up prompt first, then the prompt for the exercise you are working on.

Set-up prompt (paste first)

> I am a student working on an economics exercise about opportunity cost, hidden costs, and the difference between price and value. Act as a tutor, not an answer key. Do not give me final numbers or conclusions. Ask me one question at a time. Make me state my assumptions before I calculate. When I show my math, check it and tell me where an error is, but let me fix it. If I ask for the answer, remind me to try first and give me a hint instead. At the end, ask me to summarize what I assumed, what I calculated, and what I still don't know.

Exercise 1: What did I leave out?

> The instructor earned $5,000 for about 120 hours of teaching work, roughly $40 an hour before taxes. I think he left out some costs and benefits. Help me find them by asking questions about what a part-time instructor actually does and pays for. Don't list them for me.

> Here is my list of left-out items and my estimates: [paste]. Ask me how I got each estimate and which one is weakest.

Exercise 2: The TA offer

> I'm deciding between two TA offers: $2,000 for the semester with two scheduled hours a week for 15 weeks, or $20 an hour. Before I calculate anything, ask me questions that help me figure out what the job actually involves and which hours would be paid.

> Here is my estimate of total hours and my effective hourly rate for each offer: [paste]. Check my arithmetic. Then ask me which assumption, if changed, would flip my choice.

Exercise 3: The university's side

> I divided a university's annual tuition by the number of courses a student takes, then multiplied by class size. Ask me questions that help me see why this number is not the same as what the university collected or what this class added to revenue.

> Here is my calculation using a real university's published tuition: [paste]. Ask me what information I would need to turn this into an estimate of net revenue, and where I could look for it.

Exercise 4: Course and degree value

> Help me think about what a single college course is worth to a student, and separately what a degree is worth. Don't tell me the answer. Ask me about realistic alternatives, financial and nonfinancial benefits, and how the answer might differ between students.

Revising your reasoning

> Here is my full answer: [paste]. Play the role of a skeptical reviewer. Identify my weakest assumption and the claim I support least. Ask me questions until I either defend them or revise them. Do not rewrite my answer for me.

Rules for using AI on this assignment

• Show your work to the AI. Don't ask it for the answer.

• If the AI states a fact, such as a tuition figure or a tax rate, check it against a source before you use it.

• Keep a short note of what changed in your reasoning and why.

6. Check your arithmetic (try first)

<details>

<summary>TA offer arithmetic</summary>

• Offer A, scheduled hours only: 15 weeks × 2 hours = 30 hours. $2,000 ÷ 30 = $66.67 per scheduled hour.

• Offer B, if only the 30 scheduled hours are paid: 30 × $20 = $600.

• Offer B matches Offer A at $2,000 ÷ $20 = 100 paid hours.

• Which offer is better depends on how many hours the job really takes, which of them are paid, and whether the duties are the same.

</details>

<details>

<summary>Instructor’s first-time rate</summary>

About 180 hours: $5,000 ÷ 180 = $27.78 per hour, under the assumptions in Section 2.3.

</details>