Calculate the economic surplus received from each programme

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Reference no: EM132151855

Question: After graduating from PenU and working full time for three years, James decided to pursue further study for a postgraduate degree. He has received the offers from three postgraduate programmes with details as follows:

(1) Part-time programme A: The tuition fee is $0.3 million and James will receive a benefit of $0.9 million from the programme. He can keep his job and work full time when studying for this programme.

(2) Full-time programme B: The tuition fee is $0.4 million and James will receive a benefit of $1.5 million from the programme. However, he has to forgo the income of $0.6 million when studying for this programme. In addition, the programme gives James a scholarship that equals 50% of the tuition fee.

(3) Full-time programme C: The tuition fee is $0.3 million and James will receive a benefit of $1.5 million from the programme. However, he has to forgo the income of $0.6 million when studying for this programme. In addition, the programme gives James a scholarship that equals 40% of the tuition fee. For simplicity, assume there are no additional benefits and costs other than those mentioned above.

a) Calculate the economic surplus received from each programme. Which is the first-best programme for James based on your calculation?

b) What is the minimum scholarship (in dollar term) offered by programme A such that James finds it indifferent between programme A and his first-best programme that you answer in part (i) above? Please show your calculation.

c) After James has paid a non-refundable deposit of $0.1 million to the first-best programme that you answered in part (i) above, he receives the notification from programme A that the programme will give him a scholarship of $0.2 million. Explain whether James should shift to study for programme A.

Reference no: EM132151855

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