A college student decides how many minutes to spend studying for a class. The student talks to her roommate, who is taking the same class, and some of what she learns rubs off. Assume the student’s marginal benefit (demand) curve for Q minutes of studying is, MB=100-Q. If she wasn’t studying then she could hang with friends, and the marginal (opportunity) cost of studying is MC = 2*Q. The roommate receives an external marginal benefit of EMB = ½ * Q.

1. What is the socially optimal level of study?

2. What corrective tax or subsidy could the government set to achieve the socially optimal level of study?

Answer rating: 100% (QA)

1 Marginal Social benefitMSBMBEMB100Q12Q10005Q Marginal CostMC2Q Set MSBMC fo... View the full answer