The figure above shows the demand for college education (D), the marginal social benefit of college education (MSB), and the marginal cost of the private schools (MC).
-In the figure above,suppose a subsidy is provided to private colleges.What amount of subsidy will ensure the efficient number of students?
A) $10,000
B) $25,000
C) $15,000
D) $5,000
E) $20,000

Question

The figure above shows the demand for college education (D), the marginal social benefit of college education (MSB), and the marginal cost of the private schools (MC).
-In the figure above,suppose a subsidy is provided to private colleges.What amount of subsidy will ensure the efficient number of students?
A) $10,000 
B) $25,000 
C) $15,000 
D) $5,000 
E) $20,000

Quizplus · Accepted Answer

The efficient number of students is where the MSB = MC. In the graph, this occurs at a quantity of 3 million students. At this quantity, the marginal cost of private schools is $20,000 per student. To subsidize this cost, the government would need to provide a subsidy of $20,000 - MSB = $20,000 - $5,000 = $15,000. Therefore, the correct answer is C) $15,000.

The Figure Above Shows the Demand for College Education (D)