Ed, Mike, and Scott are the only three people in a community and Ed is willing to pay $20 for the 5^th unit of a public good; Mike, $15; Scott, $25.The government should produce the 5^th unit of the public good if the marginal cost is: A)less than $150. B)less than $100. C)less than $60. D)less than $300.

Question

Quizplus · Accepted Answer

The government should produce the public good up to the point where the sum of individual willingness to pay equals the marginal cost. Therefore, in this case, the government should produce the public good up to the point where the total willingness to pay is $60 ($20 + $15 + $25). 
Any marginal cost higher than $60 would make it so that the cost of producing the public good exceeds the willingness to pay of the individuals, and thus it would not be efficient to produce it. Therefore, the marginal cost should be less than $60.

Ed, Mike, and Scott Are the Only Three People in a Community