Efficient production of a public good requires
A)that individuals pay for such goods according to benefits received.
B)that each individual's MRS be equal to the RPT of public goods for private goods.
C)that the sum of individuals' MRSs be equal to the RPT of public goods for private goods.
D)that governments produce at the low point of the average cost curve for the public good.

Question

Quizplus · Accepted Answer

Efficient production of a public good requires that the sum of individuals' marginal rate of substitution (MRS) be equal to the marginal rate of transformation (MRT) or benefit-cost ratio of public goods for private goods. This is because public goods are non-rival and non-excludable, meaning that their consumption by one individual does not reduce the availability or value of the good to others, and they cannot be withheld from those who do not pay for them. Therefore, individuals cannot be charged for the benefits they receive, and their willingness to pay for public goods cannot be used to determine their value or production level. Instead, the efficient level of production of public goods must be determined by comparing the marginal benefits and costs of each unit supplied, and selecting the quantity at which the marginal benefit equals the marginal cost. This requires that the sum of individuals' MRSs be equal to the RPT or MRT of public goods for private goods, which reflects the opportunity cost of resources used in producing public goods instead of private goods. In contrast, options A, B, and D do not adequately capture the unique characteristics and challenges of public goods production and allocation, and may not result in efficient outcomes.

Efficient Production of a Public Good Requires