Assume that we have the following information about a firm that conducts scientific research: The total cost of producing q units of research is 1.5q^2. The firm believes that when it produces q units of research, it receives a benefit of 120q-q^2. The total external benefit to society of each unit of the firm's research is valued at q^2 (not including the benefit the firm receives). (a) Draw a graph that shows the marginal private cost, marginal private benefit, marginal social cost and marginal social benefit generated by this firm. How many units of research will the firm produce if there is no outside interference? (b) What is the socially optimal amount of research? (c) Suggest a tax or subsidy that would induce the firm to produce the socially optimal amount of research, then show that this tax does indeed cause the firm to produce the socially optimal amount of research
4. Assume that we have the following information about a firm that conducts scientific research: The total cost of producing q units of research is 1.5q^2. The firm believes that when it produces q units of research, it receives a benefit of 120q-q^2. The total external benefit to society of each unit of the firm's research is valued at q^2 (not including the benefit the firm receives).
(a) Draw a graph that shows the marginal private cost, marginal private benefit, marginal
(b) What is the socially optimal amount of research?
(c) Suggest a tax or subsidy that would induce the firm to produce the socially optimal amount of research, then show that this tax does indeed cause the firm to produce the socially optimal amount of research.
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