Scenario: Alexander and Vanessa Alexander and Vanessa benefit from scientific re

Question

Scenario: Alexander and Vanessa Alexander and Vanessa benefit from scientific research. Alexander's marginal private benefit from such research is given by the equation P = 200 – Q, where Q refers to the amount of research undertaken and P is the price Alexander is willing to pay for such research. Vanessa's marginal private benefit from such research is given by the equation P = 100 – Q. The marginal social cost of engaging in such research is constant at $100. Reference: Ref 17-15 (Scenario: Alexander and Vanessa) Refer to the scenario Alexander and Vanessa. If the socially optimal level of scientific research is produced and if both Vanessa and Alexander are truthful in disclosing the marginal private benefits they expect to receive from this research, what is the price per unit of research that Vanessa is willing to pay? $50 $0 $100 $300

Explanation / Answer

Ans-Alexander's marginal private benefit from such research is given by the equation P = 200 – Q.

Vanessa's marginal private benefit from such research is given by the equation P = 100 – Q.

The marginal social cost of engaging in such research is constant at $100.

We know that,MSB=MPB+MEC.Hereassume that the demand curve for an environmental good is fully coincidental with the marginal social benefit function and can be described as MSB = MPB .

We need to find out,what Venessa is willing to pay price per unit of research.

the optimal level of output means,MSC=MSB=MPB

For Venessa,

100=100-Q

Or,Q=0.

So putting value of Q we get P=100-0=100.

Venesa is willing to pay price per unit of research is $100.

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