Under federal laws, firms in many agricultural industries can force all industry members to contribute to collective activities such as industry advertising if the majority agrees. Under the Beef Promotion and Research Act, all beef producers must pay a $ 1-per-head fee on cattle sold in the United States. This fee raises $ 80 million annually, which finances research, educational programs on mad cow disease, and collective advertising such as the 2012 campaign, “Stay Home. Grill Out.” Explain the logic of this law using the concepts of free riding and public goods. Supporters of this collective advertising estimate that producers receive $ 5.67 in additional marginal revenue for every dollar they contribute. If so, does this result suggest that there was a public good problem? Is the industry advertising optimally?
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