The Free-Rider Problem with a Public Good Leads to

question 113

Multiple Choice

The free-rider problem with a public good leads to

• A) inefficiency if the good is provided by only private markets with no government action.
• B) overproduction if the good is provided by private markets.
• C) underproduction if the good is provided by the government.
• D) None of the above answers is correct.

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Definitions:

Marginal Cost

The cost of producing one additional unit of a good or service, considered crucial in determining production levels and pricing decisions.

Average Variable Cost (AVC)

The variable cost of production divided by the number of units produced, reflecting the cost per unit excluding fixed costs.

Average Fixed Cost (AFC)

A firm’s total fixed cost divided by output (the quantity of product produced).

Marginal Cost (MC)

The extra (additional) cost of producing 1 more unit of output; equal to the change in total cost divided by the change in output (and, in the short run, to the change in total variable cost divided by the change in output).