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?pay for it to be efficient for government to produce the third unit?

Question

Quizplus · Accepted Answer

The sum of the willingness to pay by Alex, Kara, and Susie must equal or exceed the marginal cost of $100. Alex and Kara together are willing to pay $65 ($40 + $25), so Susie must be willing to pay at least $35 to reach the $100 cost.

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