Asked by Andrea Anguiano on May 12, 2024
Verified
If the marginal cost of producing a public good is greater than society's total willingness to pay per unit, then
A) the optimal amount of the public good is being produced.
B) less than the optimal amount of the public good is being produced.
C) more than the optimal amount of the public good is being produced.
D) the amount of output being produced could be either greater than or less than the optimal amount.
Marginal Cost
The charge for generating one more unit of a product or service.
Total Willingness to Pay
The maximum amount an individual or group is willing to pay for a good or service, reflecting the total value they derive from it.
- Clarify the differentiation between the incremental cost of production and the public's readiness to offer payment for communal goods.
Verified Answer
AL
Alexandra LeezerMay 13, 2024
Final Answer :
C
Explanation :
When the marginal cost of producing a public good exceeds society's total willingness to pay per unit, it indicates that resources are being overallocated to the production of that good, meaning more of the public good is being produced than is optimal.
Learning Objectives
- Clarify the differentiation between the incremental cost of production and the public's readiness to offer payment for communal goods.