Part (i)

A lighthouse is an example of a private good that is both non-excludable and non-rivalry in production.

The above statement is false

Although the lighthouse is non-excludable (no one can be excluded from consuming it) and non- rival (consumption by a person does not reduces its consumption for others), but it is not a private good. It is a public good.

Part (ii)

Microeconomic efficiency occurs when:

option (c) MB=MC is correct

The reason is that microeconomic efficiency is achieved when the price charged is equal to the marginal cost. And the price that consumers will to pay is actually the marginal benefit that they get from that good. Hence, MB = MC is the optimal level for microeconomic efficiency.

Part (iii)

What can the government do to encourage merit goods?

option (c) subsidies is correct

Merit goods relates to those goods which can be have a positive impact on the society but government thinks that it will be under consumed.

Therefore, to increase its demand and consumption, government should provide subsidies which will make its consumption cheaper and raise its demand.