Question

There are many positive externalities associated with R&D in almost any area of economic activity. An economic good has several layers of inputs associated with its development (R&D), manufacture (MAN) and distribution (DISTR). Typically, these vary across time but for our purposes we will generalize the industry (private) marginal costs as the aggregate of the parts: MCR&D = 6+Q/3, MCMAN=29+2Q and MCDISTR = 5 + 2Q/3 The govt sector is one of two buyers of the good. The government’s MWTP function is q = 100 (so it’s not a function of price), and the private sector’s MWTP function is MWTP = 940 – 2q. The various externalities associated with the R&D in this industry can be summarized by MEB = –20 + Q/2. 5. The market failure can be characterized as an ____production of ____ units. a) over, 15 b) under, 20 c) over, 25 d) under, 30 e) over, 30

Answer 1