Economics Homework Help

HELLO i HAVE THESE 2 QUESTIONS WITH ANSWERS. THEREFORE I’D LIKE TO RECEIVE A DETAILED EXPLANATION OF

THE ANSWER WITH THEORY CONCEPTS AND CALCULATIONS

THANKS

13-58

A drug company is deciding how much to invest in Research and Development into finding a cure for diabetes.

The table below shows the company’s demand for financial capital for R&D based on its expected rates of return from selling the cure. Every investment provides an additional 4% social return: that is, an investment that pays at least a 5% return to the drug company will produce at least a 9% return for society as a whole.

If the opportunity cost of financial capital for the drug company is 7%, the drug company will invest ___ in R&D if it receives only the private benefits of this investment.

ANSWER a) $250

2) 13-59

A drug company is deciding how much to invest in Research and Development into finding a cure for the common cold. The table below shows the company’s demand for financial capital for R&D of this cold drug,

based on its expected rates of return from selling the cure. Every investment has an additional 4% social return: that is, an investment that pays at least a 5% return to the drug company will produce at least a 9% return for society as a whole.

If the opportunity cost of financial capital for the drug company is 7%, the drug company will invest ___ in R&D if it receives both the private and the social benefits of this investment.

ANSWER c) $308