Asked by Colton Owens on Jun 19, 2024
Verified
The marginal cost of producing 25 units of a public good is $100. There are two individuals in the society. Person A is willing to pay $40 for 25 units of the public good. If 25 units of the public good are provided, then Person B must be willing to pay
A) $0.
B) $40.
C) $60.
D) $75.
Marginal Cost
The increase in total production cost that arises from producing one additional unit of a good or service.
Public Good
A product or service that is provided without profit to all members of a society, either by the government or a private individual or organization.
- Explain the difference between the marginal cost of production and society's willingness to pay for public goods.
Verified Answer
JM
James MurrayJun 23, 2024
Final Answer :
C
Explanation :
The marginal cost of producing 25 units is $100. Since public goods are non-excludable and their costs are shared, the combined willingness to pay by Person A and Person B must equal the marginal cost. Person A is willing to pay $40, so Person B must be willing to pay $60 ($100 - $40) to cover the total cost of $100.
Learning Objectives
- Explain the difference between the marginal cost of production and society's willingness to pay for public goods.