Question
A college student decides how many minutes to spend studying for a class. The student talks to her roommate, who is taking the same class,
A college student decides how many minutes to spend studying for a class. The student talks to her roommate, who is taking the same class, and some of what she learns rubs off. Assume the student’s marginal benefit (demand) curve for Q minutes of studying is, MB=100-Q. If she wasn’t studying then she could hang with friends, and the marginal (opportunity) cost of studying is MC = 2*Q. The roommate receives an external marginal benefit of EMB = ½ * Q.
1. What is the socially optimal level of study?
2. What corrective tax or subsidy could the government set to achieve the socially optimal level of study?
Step by Step Solution
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Step: 1
1 Marginal Social benefitMSBMBEMB100Q12Q10005Q Marginal CostMC2Q Set MSBMC fo...
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Management A Practical Introduction
Authors: Angelo Kinicki, Brian Williams
5th edition
978-1111821227, 9781133190363, 1111821224, 1133190367, 978-0078112713
