Ed,Mike,and Scott are the only three people in a community and Ed is willing to pay $20 for the 5^th unit of a public good;Mike,$15;Scott,$25.The government should produce the 5th unit of the public good if the marginal cost is:

Question

Quizplus · Accepted Answer

The government should produce the amount of public goods up to the point where the sum of the marginal benefits equals the marginal cost of producing it. The three individuals value the 5th unit of public good at $20+$15+$25 = $60. Therefore, the marginal benefit of producing the 5th unit is $60. The government should produce the 5th unit only if the marginal cost is less than $60. Only option C, which states a marginal cost less than $60 meets this condition, so it is the best choice.

Ed,Mike,and Scott Are the Only Three People in a Community