Alex, Kara, and Susie are the only three people in a community. Alex is willing to pay $40 for the third unit of a public good; Kara is willing to pay $25. If the marginal cost of producing the third unit is $100, what is the
Minimum amount that Susie must be willing to pay for it to be eﬃcient for government to produce the third
Unit?

Question

Quizplus · Accepted Answer

The minimum amount Susie must be willing to pay is $35 to make the production of the third unit efficient. This is because the sum of the willingness to pay by Alex ($40), Kara ($25), and Susie must equal or exceed the marginal cost of production ($100). Alex and Kara's combined willingness to pay is $65, so Susie must be willing to pay at least $35 to reach the $100 marginal cost.

Alex, Kara, and Susie Are the Only Three People in a Community