The Reason Why We Sum the Demand Curves of Individual

question 42

Multiple Choice

The reason why we sum the demand curves of individual consumers vertically rather than horizontally in a public goods market is that:

• A)the willingness to pay in a public good market is smaller than that in a standard market.
• B)individual consumers are unlikely to be willing to pay enough to cover the marginal cost of production of a public good.
• C)the marginal social benefit of the Xth unit includes all consumers' marginal social benefits because the public good is non-exclusive and non-rival.
• D)the concept of quantities is meaningless in the case of public goods.

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Definitions:

Incremental Revenue

The additional revenue generated from a specific action or decision, beyond what would have been generated without it.

Variable Cost

Costs that vary directly with the level of production or sales volume, such as materials and labor.

Fixed Cost

A fixed cost is an expense that does not change with the level of goods or services produced by a business, such as lease payments or insurance premiums.

Sunk Cost

A sunk cost is a past expense that has already been incurred and cannot be recovered. Businesses cannot alter these costs with future decisions.