Amanda keeps bees to produce honey. Each hive produces $350 worth of honey each month. The...

Amanda keeps bees to produce honey. Each hive produces $350 worth of honey each month. The table below shows Amanda’s marginal cost of tending each bee hive and her private marginal benefit, which is equal to the market value of the honey each hive produces.

Marginal Cost and Marginal Benefit

Quantity (hives)	MC_private	MB_private	MB_e_xternal	*MB_social*
1	$50	$350	$	$
2	150	350
3	250	350
4	350	350
5	450	350

Instructions: Enter your answers as a whole number.

a. What is "private quantity" of hives for Amanda to tend?

hive(s)

Now suppose that each of Amanda’s bee hives also provides pollination services to surrounding farms and that these services are worth $100 per hive per month.

b. Fill in the external marginal benefit (MB_external) and the social marginal benefit (MB_social) columns in the table above.

c. What is the socially efficient number of hives for Amanda to tend if all costs and benefits are considered?

hive(s)

Solutions

Expert Solution

Solution :

a) " Private quantity" of hives that Amanda will tend to is 4 hives where MCp = MBp

b) at all quantity of hives, the Marginal External Benefit (MBe) is $100

And marginal social Benefit (MBs) is $450 at all quantities ( MBs =MBp + MBe)

c) Amanda will tend to 5 hives as it is a socially effecient number of hives where MCp = MBs

Rahul Sunny answered 2 years ago

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