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

For it to be efficient for the government to produce the third unit, the sum of the willingness to pay by Alex, Kara, and Susie must at least equal the marginal cost of production, which is $100. Alex is willing to pay $40, and Kara is willing to pay $25, totaling $65. Therefore, Susie must be willing to pay at least $35 ($100 - $65) for the production of the third unit to be considered efficient.

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