Why are private firms unable to produce public goods?
A) Because the government outlaws private firms from producing them.
B) The marginal cost of production is too high for private production to be possible.
C) They can produce these goods, but they would not earn any revenue because of the free-rider problem.
D) The tragedy of the commons means that private firms produce an inefficient amount of public goods.
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

Public goods are those that are non-excludable and non-rivalrous in consumption, meaning that it is difficult to prevent individuals from using them and their use by one person does not diminish the availability to others. Since private firms aim to earn profits and cannot exclude non-payers from using the public goods, they would not be able to generate sufficient revenue to cover the costs of production. This is because of the free-rider problem, whereby individuals have an incentive to benefit from a public good without paying for it.

Why Are Private Firms Unable to Produce Public Goods