The optimal output of a public good occurs where
A)the total cost of the good equals the cumulated benefits of all consumers.
B)the sum of the marginal benefit of each consumer at a given output equals the marginal cost of the good.
C)the marginal benefit of the consumer who values the good most should equal the marginal cost of the good.
D)the horizontal sum of the consumer benefits of the good should equal the marginal cost of producing the good.

Question

Quizplus · Accepted Answer

The optimal output of a public good occurs where the sum of the marginal benefit of each consumer at a given output equals the marginal cost of the good. This is known as the "efficient level of provision" and ensures that resources are used effectively to produce the public good, while also ensuring that the benefits of the public good are distributed fairly among the consumers. Option A is incorrect because the total cost of the good is not necessarily equal to the benefits of all consumers. Option C is not the best choice because it only takes into consideration the most-valuing consumer, whereas the efficient level of provision takes into account all consumers. Option D is also incorrect because it only considers the cost of production and not the benefits that consumers derive from the public good.

The Optimal Output of a Public Good Occurs Where