Final answer:
Market demand for a public good is obtained by vertically summing individual demands. This concept is part of understanding how to calculate total revenue, marginal revenue, and various costs in economics.
Step-by-step explanation:
In theory, market demand for a public good is found by vertically summing individual demands, not by taking the average, horizontally summing, or finding the highest individual demand. When calculating total revenue, firms multiply combinations of price and quantity at each point on the demand curve. Marginal revenue is then determined as the change in total revenue divided by the change in quantity.
To calculate total, marginal, and average costs, other formulas are used, such as dividing the change in total cost by the change in quantity for marginal cost, and dividing total cost by quantity for average cost. In regards to setting prices and quantities, regulators may aim to choose a point on the market demand curve that aligns with the social interest, requiring firms to produce and charge at a point where marginal cost crosses the demand curve.