The efficient output level of a public good occurs where the
A)greatest number of free riders occurs.
B)marginal social cost of producing the last unit is equal to the marginal social benefit realized by consumers.
C)total cost of production is affordable.
D)marginal cost of production is minimized.

Question

Quizplus · Accepted Answer

The efficient output level of a public good occurs where the marginal social cost of producing the last unit is equal to the marginal social benefit realized by consumers. This is because in a public good, the consumption by one individual does not reduce the consumption by another individual. Therefore, the social benefit can be derived by adding the individual benefits, and the social cost can be derived by adding the individual costs. The efficient output level is where the marginal social benefit equals the marginal social cost.

The Efficient Output Level of a Public Good Occurs Where