Suppose good A is a public good.The marginal cost of providing 5 units of this good is $300.The marginal benefit derived from the consumption of 5 units by 3 individuals X,Y,and Z are $75,$125,and $100 respectively.Assuming that X,Y,and Z are the only consumers of good A,which of the following will hold true?
A)Good A will be overproduced in the economy.
B)Good A will be underproduced in the economy.
C)Producing 5 units of A is efficient.
D)More than 5 units of good A must be produced to make the outcome efficient.

Question

Quizplus · Accepted Answer

The total marginal benefit of providing 5 units of good A, which is a public good, is the sum of the marginal benefits derived by all individuals, which equals $300 ($75 + $125 + $100). Since the marginal cost of providing these 5 units is also $300, producing 5 units is efficient as the total marginal benefit equals the marginal cost.

Suppose Good a Is a Public Good