Answer to Question #283189 in Microeconomics for Faizi

Question

Online learning aids cuts the marginal cost of educating a student to a2,000 a year. The marginal private benefit is the same as that in problem 7. The external benefit from education increases to a4,000 per student per year. a With no government involvement and if the schools are competitive, how many students are enrolled and what is the tuition? b If the government provides the efficient amount of education, how many school places does it offer and what is the tuition? c Compare the outcomes in problem 8 with those in problem 7. Explain the differences.

Answer 1

a)MC=P

With 8 thousand dollars, the marginal costs will be 6 thousand students, and with a decrease of 2 thousand to 6 thousand dollars, there will be 7 thousand students.

In competition, marginal costs are equal to the market price of the product: MS = R. The ultimate condition for maximizing profit is such a volume at which the price equals the marginal cost.

The total costs of such a policy from the standpoint of welfare = a change in the surplus of the consumer + a change in the surplus of the producer - the costs of the state.

4000=2000-the costs of the state.

the costs of the state=-2000

b) with a decrease of 2 thousand to 6 thousand dollars (8-2), there will be 7 thousand students.