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Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that______ a) zero units should be produced. b) the third unit should be produced. c) the third unit should not be produced. d) 4 units should be produced.

Respuesta :

Answer:

b) The third unit should be produced

Explanation:

Consumer surplus arises wherein the price consumer actually pays is lesser than the price consumer was willing to pay.

Marginal cost refers to the additional cost incurred when an extra unit is produced.

Marginal revenue refers to the addition to total revenue when an additional unit of a good is produced.

As per marginal analysis, a producer would continue producing till the point wherein the marginal cost of production is equal to the marginal revenue derived.

In the given case, the two members are willing to pay $10 and $8 for the third unit of public good. The marginal cost for third unit being $17. While the marginal revenue derived being $18 ($10 + $8)

Since, the marginal revenue derived would be greater than marginal cost, the third unit should be produced.

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