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A beekeeper, Yung, lives next to an apple orchard. She is not only benefits from the bees� honey, which she sells, but she sells, but she also creates a positive externality for her apple grower neighbor: Yung�s bees help pollinate the apple trees so the apple grower can grow more apples. Yung�s total cost and benefit for keeping her bees is the following: Price per 1000 bees 27 24 23 21 18 15 12 Quantity of bees demanded 1 2 3 4 5 6 7 Quantity of bees supplied 9 8 7 6 5 4 3 a. Ignoring the externality, how many bees will be kept? b. If the apple grower wants to see 6,000 bees kept, what is the value of the externality? What would have to happen for the socially optimal amount of bees to be kept?

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Paramjeet Chawla
Paramjeet ChawlaLv8
28 Sep 2019

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Related questions

2.) Consider a beekeeper that is deciding how much honey to produce. The beekeeper gains a benefit from producing honey, represented by the marginal benefit function and which is given by:

MB= 300 - 6Q

where Q is barrels of honey.

In addition, she has a marginal cost function, which reflects her cost of producing honey; this is given by:

MC= 40 + 4Q

The beekeeper’s total profit function is given by:

Profit= 360Q + Q^2

The more honey the beekeeper produces, the more bees there are to pollinate a neighboring apple orchard. Thus, in addition to the private benefit accruing to the beekeeper herself, there is also a marginal external benefit to the apple orchard, which is given by:

MEB= 100 - 2Q

And a total external benefit to the apple orchard given by:

TEB= 100Q - Q^2

a. Find an expression for the social marginal benefit (SMB) in this case, defined as you think appropriate. Calculate the level of honey production that will arise if the beekeeper acts in her self-interest only. Calculate the socially efficient level of honey production as well.

b. Suppose that the beekeeper and the owner of the apple orchard enter into negotiations. The orchard owner wants to offer a payment to the beekeeper to change honey production from her self-interested production level to the socially efficient level (all at once). What is the maximum total payment that the orchard owner would be willing to pay for this overall change? What is the minimum total payment that the beekeeper would require before making this overall change?

c. Assume that, if a deal is reached, each party must pay $35 in legal fees to finalize it. If there are no additional transaction costs, will the socially efficient quantity be reached? Explain.

d. Irrespective of your answer to part c, assume that the beekeeper and the orchard owner come to a private agreement to set honey production at the socially efficient quantity. However, now suppose that a policymaker reads somewhere that honey production provides a positive externality to apple orchards, and therefore decides that the beekeeper should be provided with a production subsidy for each unit of honey that the beekeeper is willing to produce. With this subsidy in place, the beekeeper decides to increase production by an additional 5 barrels. Calculate the associated efficiency loss.

e. If honey is good to eat and bees are good for trees, why is there such a thing as too much honey?

Question 1

Which compensation method helps to explain the large difference between the salaries of top-level managers and mid-level managers in a firm?

A.

Tournaments
B.

New blood
C.

Piece rate
D.

Backloaded compensation

3 points

Question 2

Please consider the information provided under Question 19 in Chapter 3 (page 54). Based on the stated information, the optimal number of bees kept if the externality is ignored by Yung is 5,000. Is the socially optimal number of bees higher or lower than 5,000?

A.

We do not have enough information to answer this question
B.

Same
C.

Lower
D.

Higher

3 points

Question 3

Which of the following factors contribute to the existence of firms?

A.

All of these factors contribute to firm existence
B.

Risks associated with specialization
C.

Incomplete contracts
D.

Willingness of some people to take on risk in exchange for residual income

3 points

Question 4

Public goods are often subject to free-rider problems because these goods are:

A.

Non-rival and non-excludable
B.

Rival and non-excludable
C.

Non-rival and excludable
D.

Rival and excludable

3 points

Question 5

Which of the following is the most efficient mechanism for allocating scarce goods?

A.

Government allocation system
B.

First-come-first-served system
C.

Market system
D.

Random allocation system

3 points

Question 6

Many years ago, most of the major Hollywood movie studios also owned chains of local movie theaters across the US. Today, most of the local movie theaters are owned by other companies. What has happened to the degree of integration in the movie industry over time?

A.

Less horizontally integrated
B.

Less vertically integrated
C.

More horizontally integrated
D.

More vertically integrated

3 points

Question 7

Your firm produces replacement parts for the nuclear submarines operated by the US Navy. Which one of Porter's Five Forces will be most prominent in determining your strategies and profitability?

A.

Bargaining Power of Suppliers
B.

Bargaining Power of Customers
C.

Threat of New Entrants
D.

Threat of Substitutes

3 points

Question 8

Which of the following statements is NOT true?

A.

The market mechanism for allocating resources is most efficient due to the incentives it creates.
B.

Markets are always the most efficient way to allocate goods, even if the market is not perfectly competitive.
C.

The random allocation mechanism provides no incentives at all.
D.

The government allocation mechanism provides no incentive for the economy to grow.

3 points

Question 9

Suppose a firm's cost structure exhibits economies of scope. Which of the following actions is compatible with this cost structure?

A.

Diversify into other product lines
B.

Focus on core competencies and reduce production
C.

Focus on core competencies and maintain constant production
D.

Focus on core competencies and expand production

Question 10

Please refer to Table 8.3 on page 132 in the book. Suppose we change the payoffs in the "low price, low price" cell to 0, 25 from 0, 0. Does this change the Nash equilibrium for the game, and is the game still a Prisoner's Dilemma?

A.

Equilibrium changes, still a Prisoner's Dilemma
B.

Equilibrium changes, no longer a Prisoner's Dilemma
C.

Same equilibrium, no longer a Prisoner's Dilemma
D.

Same equilibrium, still a Prisoner's Dilemma

3 points

Question 11

Which of the following statements about restricting entry to markets is NOT true?

A.

Brand identity and logos are expensive to establish, and entrants may find it very expensive to establish comparable position in the market.
B.

Predatory pricing is illegal but very difficult to prove in court
C.

Branded products tend to have more elastic demand, which makes it more difficult for entrants to charge high prices and they must stay out of the market.
D.

A low-quality seller cannot effectively use a warranty program to keep other firms out of its market

3 points

Question 12

Your firm earns $2 million per quarter in total revenue, and your accounting profits are $100,000 per quarter. You do not charge the firm for the use of an old building that you own because it is 50 years old and fully depreciated. However, another firm has offered you $200,000 per quarter to use the facility, and this is the market rental rate for similar facilities. In this case, we know that your:

A.

Opportunity costs are positive and economic profits are negative
B.

Opportunity costs and economic profits are positive
C.

Opportunity costs are negative and economic profits are positive
D.

Opportunity costs and economic profits are negative

3 points

Question 13

Please refer to Question 13 in Chapter 1 (page 17). What is the marginal cost of reducing global warming by 0.017 degrees?

A.

MC = 60
B.

MC = 5
C.

We do not have enough information to answer this question
D.

MC = 50

3 points

Question 14

In Chapter 6, Boyes focuses on negative externalities such as the various types of pollution. However, as we discussed during our online session, we can also observe positive externalities in which external benefits are generated for people. Which of the following is NOT an example of a positive externality?

A.

Workers can help one another to "cover the phones" and make sure that someone is always available to help clients
B.

Workers can provide ideas to one another about how to solve problems
C.

All of these cases are examples of positive externalities
D.

Workers can form carpools and use other means to reduce commuting costs

3 points

Question 15

Common property resources are:

A.

Non-rival and non-excludable
B.

Non-rival and excludable
C.

Rival and non-excludable
D.

Rival and excludable

3 points

Question 16

The free-rider problem arises in markets for common property resources.

A.

False
B.

True

3 points

Question 17

Firms that set their product price below the actual cost of production may be engaging in:

A.

Predatory pricing
B.

Monopoly pricing
C.

Moral hazard
D.

Dollar-cost averaging

3 points

Question 18

Under a cap-and-trade mechanism to control air pollution, what happens to the price of pollution rights if the supply of righs is reduced (i.e., the supply of rights is reduced)?

A.

Increases
B.

Decreases
C.

No change

Question 19

The key method for a manufacturing firm to avoid hold-up problems is to have another source of inputs.

A.

False
B.

True

3 points

Question 20

Your firm sells luxury autos, and you have asked the marketing department to develop and stronger brand identity through a new ad campaign. After the campaign has run for 6 months, you hire an economic consultant to study the impact of the campaign on the demand for your autos. The consultant reports that the demand for your cars is now more elastic than it was 6 months ago. Was the new ad campaign successful?

A.

Yes
B.

No

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