Please help with this question I am having a bit of difficulty on. I will be sur

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Please help with this question I am having a bit of difficulty on. I will be sure to leave a review. Thank you in advance for your help!

4. The above table shows the marginal benefit from submarines for the only two citizens of a country. Submarines are a public good. If submarines cost $175 a piece to produce, what is the efficient quantity of submarines? Katie Bobby Marginal benefit (dollars per submarine) 100 75 50 25 0 Marginal benefit (dollars per submarine) 150 100 50 10 0 Quantity Quantity 4 4

Explanation / Answer

Efficient quantity is 2 units.

Unlike a private good where market demand is obtained by horizontal summation of individual demand curves, for a public good the market demand is obtained by vertical summation of individual demand curves. Therefore, when cost is $175, aggregate (market) marginal benefit will also be $175, which is obtained when Katie's marginal benefit is $75 and Bobby's marginal benefit is $100 (totalling $175), for an output level of 2 units.

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