Let the private demand for medical research be P = 90-Q and let the supply for medical research equal P = Q.
a.Find the equilibrium price and quantity.
b.Suppose each unit of medical research has a positive externality such that the marginal social benefit is P = 90 - .5Q.What is the socially optimal level of research?

Question

Quizplus · Accepted Answer

The Answer is a.The answer is found by setting demand and supply equal and solving for quantity.
P = 90 - Q = Q
90 = 2Q
45 = Q
45 = P
b.Again,the answer is found by setting the marginal social benefit equal to supply and solving for the quantity.
P = 90 - .5Q = Q
90 = 1.5Q
60 = Q

Let the Private Demand for Medical Research Be P =