Why are private firms unable to produce public goods?
A) The tragedy of the commons means that private firms produce an inefficient amount of public goods.
B) The marginal cost of production is too high for private production to be possible.
C) Because the government outlaws private firms from producing them.
D) They can produce these goods, but they would not earn any revenue because of the free-rider problem.
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

Private firms are unable to produce public goods because of the free-rider problem. Public goods are non-excludable and non-rival, meaning that once they are provided, no one can be excluded from using them and one person's use does not reduce the amount available for others. This creates a situation where individuals can enjoy the benefits of the public good without paying for it, leading to an underproduction of the good by private firms who would not earn any revenue from producing it.

Why Are Private Firms Unable to Produce Public Goods