When Choosing the Right Amount of a Public Good to Supply

question 110

Multiple Choice

When choosing the right amount of a public good to supply, the government often:

• A)guesses, because people have an incentive to overstate a good's value.
• B)provides too much, because people have an incentive to understate a good's value.
• C)provides too little, because people have an incentive to overstate a good's value.
• D)fails to provide it, because people have an incentive to understate a good's value.

---

Definitions:

Marginal Revenue

The additional revenue that a firm gains from selling one more unit of a good or service.

Monopoly

A market structure where a single firm or entity exclusively controls the supply of a particular good or service, limiting competition.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Natural Monopoly

A type of monopoly that arises because a single firm can supply a good or service to an entire market at a lower cost than could two or more firms.