Question
In: Economics
A beekeeper and a farmer with a 10 acre apple orchard are neighbors. This is convenient...
A beekeeper and a farmer with a 10 acre apple orchard are neighbors. This is convenient for the orchard owner since the bees pollinate the apple trees. One beehive can pollinate one acre of orchards. If the orchard owner had to buy pollination services on the market, it would cost $10 per acre. The beekeeper has total cost of TC = H2 + 10H and marginal costs of MC = 10 + 2H, where H is the number of hives. Each hive yields (a marginal revenue of) $20 worth of honey.
A.) How many hives would the beekeeper maintain if operating independently of the farmer?
B.) What is the socially efficient number of hives, taking into account the marginal external benefit that each hive produces?
C.) In the absence of transaction costs, what outcome do you expect to arise from bargaining between the beekeeper and the farmer? (Hint: This involves comparing the additional benefit, accruing to the farmer, with the additional costs, accruing to the beekeeper.)
D.) How high would total transaction costs have to be to erase all gains from bargaining?
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
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