-The figure above shows the marginal social costs (MSC) , marginal private benefits (MB) , and marginal social benefits (MSB) of college education in Inland. Suppose Inland's government is considering subsidizing private colleges to ensure the efficient level of enrollment. What should be the amount of the subsidy (if any) ?

Question

Quizplus · Accepted Answer

The efficient level of enrollment is where MSB = MSC. At this point, the marginal social benefit of an additional student is equal to the marginal social cost. In the graph, this occurs at an enrollment of 10,000 students. The marginal private benefit of an additional student is $6,000, but the marginal social benefit is only $4,000. This means that the private market will under-provide education, and the government should subsidize private colleges by $2,000 per student per year to ensure the efficient level of enrollment.

-The Figure Above Shows the Marginal Social Costs (MSC), Marginal