The efficient output level of a public good occurs where the
A) greatest number of free riders occurs.
B) marginal cost of producing the last unit is equal to the marginal benefit realized by consumers.
C) total cost of production is affordable.
D) marginal cost of production is at its lowest.

Question

Quizplus · Accepted Answer

The efficient output level of a public good occurs where the marginal cost of producing the last unit is equal to the marginal benefit realized by consumers. This is because in the absence of market prices for public goods, the demand curve represents the marginal benefit to society, and the supply curve represents the marginal cost of production. Therefore, producing the level of output where the marginal cost equals the marginal benefit maximizes societal welfare. The other answer choices are incorrect because they do not relate to the concept of efficient output level of public goods.

The Efficient Output Level of a Public Good Occurs Where