If the government subsidizes colleges and sets the subsidy so that the efficient number of students enroll, what is the subsidy per student, how many students enroll, and what is the cost to taxpayers?

The marginal cost of educating a college student is $5,000 a year. Table 3 shows the marginal benefit schedule from a college education. The marginal external benefit from a college education is a constant $2,000 per student per year. There are no public colleges.

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TABLE 3 Students (millions per year) 12345678 5 Marginal benefit (dollars per student per year) 5,000 3,000 2,000 1,500 1,200 1,000 800 500