Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry maximizes his economic surplus by attending:
A)Elite U.
B)State College.
C)NoName U because he has a full scholarship there.
D)NoName U because the annual cost is only $20,000.

Question

Quizplus · Accepted Answer

To determine what Larry should do, determine the value of each option as if it were his only choice. In this case, the value to Larry from attending Elite U (net of tuition)is $60,000 - $50,000 = $10,000. His value from attending State College (net of tuition)is $40,000 - $20,000 = $20,000. And, his value from attending NoName U (net of tuition)is $15,000 - 0 = $15,000. Thus, his economic surplus will be the highest if he attends State College.

Larry Was Accepted at Three Different Graduate Schools, and Must