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Figure: An Individual's Marginal Benefit from a Public Good
-(Figure: An Individual's Marginal Benefit from a Public Good) Look at the figure An Individual's Marginal Benefit from a Public Good. Assume that two individuals will share consumption of a public good; each individual has the marginal benefit curve shown in the figure. If the marginal cost of the good is $24, what is the total benefit of the level of the public good that maximizes society's welfare?
A) $0
B) $24
C) $124
D) $256

Question

Use the following to answer questions:
Figure: An Individual's Marginal Benefit from a Public Good 
-(Figure: An Individual's Marginal Benefit from a Public Good) Look at the figure An Individual's Marginal Benefit from a Public Good. Assume that two individuals will share consumption of a public good; each individual has the marginal benefit curve shown in the figure. If the marginal cost of the good is $24, what is the total benefit of the level of the public good that maximizes society's welfare?
A) $0 
B) $24 
C) $124 
D) $256

Quizplus · Accepted Answer

The total benefit is the sum of the marginal benefits for both individuals. The optimal level of the public good is where the combined marginal benefit equals the marginal cost of $24. If each individual's marginal benefit at this level is $12, the total benefit is $24 per unit. If the optimal quantity is 10 units, the total benefit is 10 * $24 = $240. Adding the consumer surplus (area above the marginal cost and below the demand curve), the total benefit is $256.

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