(Scenario: Alexander and Vanessa)Use Scenario: Alexander and Vanessa.What is the socially optimal amount of scientific research for this economy? Scenario: Alexander and Vanessa
Alexander and Vanessa benefit from scientific research.Alexander's marginal private benefit from such research is given by the equation MPB = 200 - Q,where Q refers to the amount of research undertaken and MPB captures the marginal private benefit Alexander gets from different marginal quantities.Meanwhile,Vanessa's marginal private benefit from such research is given by the equation MPB = 100 - Q.The marginal social cost of such research is constant at $100.
A)60 units
B)300 units
C)100 units
D)200 units

Question

Quizplus · Accepted Answer

The socially optimal level of research occurs where the marginal social cost equals the marginal social benefit. In this case, the marginal social benefit is the sum of the marginal private benefits of Alexander and Vanessa which is given by MPB = 300 - 2Q. Setting this equal to the constant marginal social cost of $100 yields 300 - 2Q = 100, or Q = 100. Therefore, the socially optimal amount of research is 100 units.