Suppose that the marginal private benefit of a new vaccine could be measured as $M P B = 10 -$ $Q$. Suppose that the marginal social benefit could be measured as $M S B = 12 - Q$. Suppose that the private marginal cost curve could be measured as $M P C = Q$. What amount of a per-unit subsidy would encourage the optimal societal consumption of the vaccine?
A) $\$ 1$.
B) $\$ 2$.
C) $\$ 4$.
D) $\$ 6 .$

Question

Quizplus · Accepted Answer

The optimal societal consumption occurs where MSB = MPC. Setting $12 - Q = Q$, we find $Q = 6$. At this quantity, MPB = 10 - 6 = 4 and MPC = 6. The subsidy needed is the difference between MSB and MPB at Q = 6, which is $12 - 4 = 8$. However, the subsidy per unit is the difference between MSB and MPC at Q = 6, which is $12 - 6 = 6$. Therefore, the per-unit subsidy needed is $6 - 4 = 2$.

Suppose That the Marginal Private Benefit of a New Vaccine MPB=10−M P B = 10 -MPB=10−

Suppose That the Marginal Private Benefit of a New Vaccine $M P B = 10 -$