Refer to the graphs which 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 graphs which 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

The optimal quantity of the public good is where the marginal cost of providing the good is equal to the sum of Alvin and Elmer's willingness to pay. From the graphs, we can see that at a quantity of 3 units, the marginal cost is $10 and the willingness to pay for Alvin and Elmer combined is also $10. Any quantity lower than 3 units would result in the marginal cost being greater than the willingness to pay, and any quantity higher than 3 units would result in the willingness to pay being greater than the marginal cost. Therefore, the best choice is 3 units.

Refer to the Graphs Which Show Demand Curves Reﬂecting the Prices