This question involves understanding the demand for financial capital by Big Drug, which at an 8% borrowing cost, would invest $30 million based on private benefits (Dprivate) but would increase investment to $52 million to incorporate societal benefits (Dsocial).
The student's question relates to evaluating a project's potential cash flows and the broader topic of financial capital demand in the context of private and social benefits in the pharmaceutical industry. The Big Drug company, facing a cost of borrowing of 8%, would have an equilibrium investment of $30 million if only private benefits were considered. This reflects the Dprivate demand curve. However, due to spillover benefits to society, the optimal investment amount considering social benefits would increase to $52 million, shown by the Dsocial demand curve. If Big Drug could internalize these social benefits, it would be incentivized to invest at the higher level of $52 million, which maximizes the overall return including both private and societal gains.