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 between the beekeeper and the orchardist. Would the private optimal level of honey production be socially optimal? Explain with the help of a diagram.
How might a subsidy be used to bring about the socially optimal level of production. For best results should the subsidy be paid to the beekeeper or the orchardist? Explain with the help of a diagram.
If bargaining were costless, would the subsidy be needed to bring about the socially efficient level of production? Explain

(Please write the answer clearly and the font is clear. Thanks!!!)

Expert Solution

i. If there is no bargaining between the beekeeper and the orchardist,the private optimal level of honey production will not be socially optimal because it will only equate the marginal costs of the beekeeper and the price paid to him (Marginal benefits of the consumers) and not include the marginal external benefits of the orchardist. (i.e. beekeeper will only keep bees and produce honey until the price paid to him is larger or equal to his marginal private cost,in this case till his marginal cost is 2$)

ii. A subsidy can be used to lower the marginal private cost such that it attains socially optimal level when it becomes equal to the marginal private benefit =2$. For best results the subsidy will have to be paid to the beekeeper who is producing the honey and keeping bees.

iii. If bargaining were costless, The orchardist and the beekeeper can come to an agreement that brings about the socially optimal level of quantity without the need of a subsidy(from Coase theorem which states that parties affected by an externality will bargain to reach the most efficient outcome if the transaction costs(in this case the bargaining costs) are zero)

Rahul Sunny answered 1 year ago

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. 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. For the beekeeper, the marginal private of producing a kilo of honey is equal to the price. But since the bees benefit...

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.

2. Consider the following data for a hypothetical economy that produces two goods, milk and honey....

2. Consider the following data for a hypothetical economy that produces two goods, milk and honey. Quantity Produced Prices Milk (litres) Honey (kg) Milk ($/litre) Honey ($/kg) Year 1 110 45 2 6 Year 2 125 40 3 7 Compute nominal GDP for each year in this economy. Using year 1 as the base year, compute real GDP for each year. What is the percentage change in real GDP from year 1 to year 2? Using year 1 as the...

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) MCprivate MBprivate MBexternal MBsocial 1 $50 $350 $ $ 2 150 350 3 250 350 4 350 350 5 450 350 Instructions: Enter your answers as a whole...

1. Calculate the selling price per handbag 2. Calculate the breakeven (in number) of handbags sold...

1. Calculate the selling price per handbag 2. Calculate the breakeven (in number) of handbags sold 3. Calculate the number of handbags to be sold if the company wants to earn a profit after tax of 10% of the total sales. You have the following information leather 2 meter per handbag Leather being imported at a cost of R 9, 200 per 150 m roll Labour Cutting and stitching of material Supervisory salary 3 hours per handbag R9,500 per month...

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...

The AMZ company produces winter growing pots for garden centres. Materials and conversion costs in the...

The AMZ company produces winter growing pots for garden centres. Materials and conversion costs in the XYZ Handling Department are applied at various rates in the manufacturing process. For September 2020, the beginning work in process inventory in the Kiln Handling Department was 3,300 units that were 35% complete with respect to materials and 25% complete with respect to conversion costs. The ending work in process inventory was 6,800 units averaging 40% completion with respect to materials and 20% complete...

The equilibrium price in this market is _ per shirt, and the equilibrium quantity is _ shirts bought and sold per month.

The equilibrium price in this market is _______ per shirt, and the equilibrium quantity is _______ shirts bought and sold per month. Complete the following table by indicating at each price whether there is a shortage or surplus in the market, the amount of that shortage or surplus, and whether this places upward or downward pressure on prices.

Currently, the sales of a company is $12,800,000 per year: price per unit $12.8; units sold...

Currently, the sales of a company is $12,800,000 per year: price per unit $12.8; units sold 1,000,000 per year; direct cost per unit $9.60; A/R 25% of $ sales (ignore A/P); inventory 25% of direct cost; cash operating expense $890,000 per year; annual depreciation $600,000; tax rate 34%; capital expenditure is zero. Now you are estimating the free cash flow for the next year when the unit sales price changes to $15.36, thus changing $ sales; however, the number of...

You are given the following projections for a project: Units sold per year: 64,219 Price per...

You are given the following projections for a project: Units sold per year: 64,219 Price per unit: $ 4 Variable cost per unit: $ 1 Fixed costs per year: $ 12,724 Initial cost of manufacturing equipment: $ 99,307 Project life (years): 2 Initial net working capital: $ 14,184 Tax rate: 21% The cost of manufacturing equipment will be depreciated straight-line to zero over the project’s life. Note: units sold per year, price per unit, variable cost per unit, fixed cost...

Question