an R&D investment that had a 7% private return to HighFlyer Airlines would have a 9% social return.

How much investment is socially optimal at the 6% interest rate?

24. Assume that the marginal private costs of a firm producing fuel-efficient cars is greater than the marginal

social costs. Assume that the marginal private benefits of a firm producing fuel-efficient cars is the same

as the marginal social benefits. Discuss one way that the government can try to increase production and

sales of fuel efficient cars to the socially desirable amount. Hint: the government is trying to affect

production through costs, not benefits.

25. Becky and Sarah are sisters who share a room. Their room can easily get messy, and their parents are

always telling them to tidy it. Here are the costs and benefits to both Becky and Sarah, of taking the time to

clean their room: If both Becky and Sarah clean, they each spends two hours and get a clean room. If
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