Ustedes estudian en la biblioteca is the correct answer.
Spanish has verb suffixes for each pronoun, which is something English only has for third person singular (-s, or -es). So, this is how to conjugate the verb estudirar (=to study):
1. yo estudio 1. nosotros estudiamos
2. tu estudias 2. vosotros estudiais
3. el/ella/Usted estudia 3. ellos/ellas/Ustedes estudian
