Public goods should be produced up to the point at which the marginal cost of production equals:

A) the maximum price any individual is willing to pay for that unit.
B) the sum of the individual marginal benefits from all consumers of that unit.
C) zero,which is the marginal cost of allowing another individual to consume the good.
D) the highest marginal benefit from any individual consumer of the good.

Question

Carrintyn Greene · Accepted Answer

Final Answer : B, Explanation :  Public goods are non-excludable and non-rivalrous in consumption. This means that the consumption of one individual does not reduce the availability or usefulness of the good to others and it is impossible to prevent individuals from consuming the good. Therefore, the marginal cost of production for public goods is zero. In order to determine the optimal production quantity, we need to look at the marginal benefit (MB) of consumption for each individual. The socially optimal quantity is where the sum of individual marginal benefits (MBS) equals the marginal cost (MC) of production, i.e. MBS = MC. So, the production of public goods should occur up to the point where the sum of individual marginal benefits equals the marginal cost of production.

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