Refer to the diagrams below in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it.If the marginal cost of the optimal quantity of this public good is $10, the optimal quantity must be:
A)1 unit.
B)2 units.
C)3 units.
D)4 units.

Question

Refer to the diagrams below in which figures (a) and (b) show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it.If the marginal cost of the optimal quantity of this public good is $10, the optimal quantity must be: 
A)1 unit. 
B)2 units. 
C)3 units. 
D)4 units.

Quizplus · Accepted Answer

To determine the optimal quantity of the public good, we need to find the quantity where the marginal cost equals the sum of the marginal willingness to pay of Alvin and Elmer (i.e. the demand curve). From the graphs, we can see that at a quantity of 3 units, both Alvin and Elmer are willing to pay $10 for the public good. At a quantity of 2 units, Alvin is willing to pay $10 but Elmer is only willing to pay $8, so the marginal willingness to pay is only $18. At a quantity of 4 units, Elmer is willing to pay $10 but Alvin is only willing to pay $7, so the marginal willingness to pay is again only $18. Therefore, the optimal quantity of the public good is 3 units.

Refer to the Diagrams Below in Which Figures (A) and (B)