Imagine a beekeeper, who produces honey and sells it at a constant price per kilogram. Draw...

Imagine a beekeeper, who produces honey and sells it at a constant price per kilogram.
1. Draw a diagram with the quantity of honey on the horizontal axis, showing the marginal cost of honey production as an upward-sloping line, and the price of honey as a horizontal line. Show the amount of honey that the profit-maximizing beekeeper will produce.
2. For the beekeeper, the marginal private of producing a kilo of honey is equal to the price. But since the bees benefit a neighboring farmer, by helping to pollinate her crops, honey production has a positive external effect. Draw a line on your diagram to represent the marginal social benefit of honey production. Show the quantity of honey that would be Pareto efficient. How does it compare with the quantity chosen by the beekeeper?
3. Using the definition of Pareto efficiency, explain why the equilibrium when externalities are not take into consideration is not efficient.

Expert Solution

In the graph above, we see the horizontal line of PMB (price) as the bee keeper is willing to sell any quantity at a fixed price. As the neighbors benefit from the bee keeping acitvity, social benefit is greater than personal benefit. So, SMB curve (Social marginal benefit curve) is higher than PMB (private marginal benefit) curve. As a result of this equation, the equilibrium point of social benefit is higher than the original equilibrium point of private benefit. Thus socially optimal quantity Q1 is greater than the private optimal quantity, Q.

Thus, pareto efficient quantity is Q1 while the quantity chosen by the bee keeper is Q.

Pareto efficiency: Pareto efficiency can be defined as a situation where no individual or party can be made better off without making atleast one individual or party worse off.

In positive externality, the private economy lacks incentives to create an outcome that is beneficial to the larger society; therefore resulting in losses in Pareto efficiency. Therefore, government intervention is required to motivate individuals like the bee keeper to produce a socially optimal output so that the other individuals can benefit from bee keeping without making anyone worse off. Thus the Parto efficient Q1 output can be produced.

Rahul Sunny answered 2 years ago

A beekeeper produces pots of honey and they are sold at a price of $2 per...

A beekeeper produces pots of honey and they are sold at a price of $2 per pot (i.e. the marginal benefit for honey is perfectly elastic). Of course, the production process of honey requires bees. The beekeeper’s bees provide an external benefit to a neighbouring orchardist. In fact, each additional pot of honey produced provides a marginal externality of 50 cents. For the following questions assume that the private marginal cost is upward sloping. Initially assume there is no bargaining...

year price per milk kg quantity of milk kg price of honey kg quantity of honey...

year price per milk kg quantity of milk kg price of honey kg quantity of honey 2011 1 100 2 50 2012 1 200 2 100 2013 2 200 4 100 compute the percentage change in nominal gap, real gap and the gap deflator in 2011 and 2012 from the preceding year. for each year, identify the variable that does not change. explain in words why your answer makes sense.

Q 3 Ibrahim Corporation produces and sells a product A with a price of $30 per...

Q 3 Ibrahim Corporation produces and sells a product A with a price of $30 per unit and variable costs of $12 per unit. Total fixed costs are $7,000. a. Calculate Ibrahim Compagny’s contribution margin per unit. b. How many units must Ibrahim Compagny sell to break even? c. You are manager in Ibrahim Corporation. Explain what assumptions and limitations you should consider when using CVP analysis? plz don't put the answer in photos

Q2: Last year, the equilibrium price of strawberries was $4.60 per kilogram and the equilibrium quantity...

Q2: Last year, the equilibrium price of strawberries was $4.60 per kilogram and the equilibrium quantity of strawberries was 5.8 million kilograms. This year, the equilibrium price of strawberries increased to $5.10 per kilogram and the equilibrium quantity increased to 6.2 million kilograms due to an increase in average income from $36,400 to $37,200. Use this information to answer the following questions. Hint: Draw the market for strawberries and review the meaning of the four measures of elasticity examined in...

The Nanjing Company produces and sells 5,000 of baby carriages per year at a selling price...

The Nanjing Company produces and sells 5,000 of baby carriages per year at a selling price of $100 each. Its current production equipment was purchased two years ago for $500,000. The equipment is being depreciated on the straight-line basis with a 5-year useful life and zero salvage value. The emergence of a new technology has led Nanjing to consider either upgrading or replacing the production equipment. The following table presents data for the two alternatives: Upgrade Replace One-time costs $300,000...

Jeanclaude Corporation produces and sells one product. The budgeted selling price per unit is $105.

Jeanclaude Corporation produces and sells one product. The budgeted selling price per unit is $105. Budgeted unit sales for July, August, September, and October are 7,400, 7,500, 13,800, and 15,300 units, respectively. All sales are on credit. Regarding credit sales, 40% are collected in the month of the sale and 60% in the following month. The budgeted accounts receivable balance at the end of August is closest to: A) $525,000 B) S315,000 C) $472,500 D) $787,500

Standard Enterprises produces an output that it sells in a highly competitive market at a price of $100 per unit.

Standard Enterprises produces an output that it sells in a highly competitive market at a price of $100 per unit. Its inputs include two machines (which cost the firm $50 each) and workers, who can be hired on an as-needed basis in a labor market at a cost of $2,900 per worker (wage). Based on the following production data, how many workers should the firm employ to maximize its profits? (hint: completing the table below will give you the answer)MachinesWorkersOutputMarginal...

The TechMech Company produces and sells 6400 modular computer desks per year at a selling price...

The TechMech Company produces and sells 6400 modular computer desks per year at a selling price of $450 each. Its current production equipment, purchased for $1,650,000 and with a five-year useful life, is only two years old. It has a terminal disposal value of $0 and is depreciated on a straight-line basis. The equipment has a current disposal price of $500,000. However, the emergence of a new moulding technology has led TechMech to consider either upgrading or replacing the production...

Corvi Corporation produces and sells one product. The budgeted selling price per unit is $126. Budgeted...

Corvi Corporation produces and sells one product. The budgeted selling price per unit is $126. Budgeted unit sales are shown below: July August September October Budgeted unit sales 7,300 11,500 14,200 12,100 All sales are on credit with 40% collected in the month of the sale and 60% in the following month. The expected cash collections for August is closest to: Multiple Choice $551,880 $1,131,480 $919,800 $579,600

2. Liest Corporation produces and sells a single product whose selling price is $112.00 per unit...

2. Liest Corporation produces and sells a single product whose selling price is $112.00 per unit and whose variable expense is $58.00 per unit. The company's monthly fixed expense is $249,480. Required: Compute break even sales in units and in dollars for Liest (4 points). Break even in UNITS = _________________ Break even in Sales $ = _________________ b. Compute how many units and dollars Liest will have to sell in order to make a target net...

Question