-Paul and Paula are the only members of society. The table above gives their marginal benefits from missile gunboats, a public good. Suppose the marginal cost of a missile gunboat is $8 million. What is the efficient quantity of missile gunboats?
A) 3 boats
B) 4 boats
C) 2 boats
D) 1 boat
E) More information about whether the services provided by missile gunboats are rival or not is needed.

Question

-Paul and Paula are the only members of society. The table above gives their marginal benefits from missile gunboats, a public good. Suppose the marginal cost of a missile gunboat is $8 million. What is the efficient quantity of missile gunboats?
A) 3 boats 
B) 4 boats 
C) 2 boats 
D) 1 boat 
E) More information about whether the services provided by missile gunboats are rival or not is needed.

Quizplus · Accepted Answer

The efficient quantity of a public good is determined by summing the marginal benefits of all individuals and comparing this sum to the marginal cost. When the combined marginal benefits equal the marginal cost, the efficient quantity is achieved. In this case, for 3 boats, the sum of marginal benefits from Paul and Paula equals or exceeds $8 million, matching the marginal cost, making 3 boats the efficient quantity.

-Paul and Paula Are the Only Members of Society