National Economics Challenge Practice Test

The reasoning behind producing the third unit of the public good hinges on the concept of total willingness to pay in relation to the marginal cost of production. In this scenario, Kim's willingness to pay is $9 and Robert's is $8, which means the total willingness to pay for the third unit amounts to $17.

For optimal production, the government should focus on whether the combined willingness to pay exceeds the marginal cost of producing that additional unit. If the marginal cost is less than $17, it is economically viable to produce the third unit, as it would provide a net benefit to society. In this case, since their combined willingness is over the potential marginal cost, producing the third unit maximizes social welfare.

The other options do not align with the principles of economic efficiency regarding public goods. It is essential to focus on the total willingness to pay from all consumers and the cost to determine whether the production of an additional unit is justified, making the reasoning for option C particularly sound.