Consider a beekeeper. The beekeeper has the following production function where the input is the number of hives and the output is quantity of honey produced. Beehives 1 2 3 4 5 6 7 8 9 10 11Honey 12 23 33 42 50 57 66 71 75 78 80The cost of installing a beehive is $100 and the price of a unit of honey (whatever that is...) is $20. Also each beehive increases the output of apples at a nearby apple orchard by $40. QUESTION 1,2,3 have already been answer I only need the explaination and answer for question 4 and 51. What is the efficient number of beehives?2. If there are barriers to negotiation between the beekeeper and the orchardist, how many will the beekeeper install? 3. What if the same person owned the beehives AND the orchard? How many beehives would that person install?4. Go back to assuming that the beehives and the orchard are owned by different people. Let's say we want to get the efficient quantity by putting a subsidy on beehives. How much should it be per hive?5. What if we wanted to subsidize honey instead? How much should that subsidy be per unit? (Round to one decimal place.) MR of applesTR of honey MR of honey(P*Q)no. ofunits ofbeehiveshoney= MPBMC= MSB%3D112240240100280223460220100260333660200100240442840180100220501000160100200571140140100180766132018010022087114201001001407515008010012010781560601001001180160040100801. In this problem, the personal gain of the beekeeper is the revenue he earns from the saleof honey. So, the marginal (MR) revenue of honey can be interpreted as the MPB(marginal private benefit) of the beekeeper. The profit maximization of a private firmwould take place at the point where MR= MPB = MC. So the rational beekeeper driven byprofit motive would install 8 units of beehives as MPB = MC for this level.Again, the bees generate additional benefit (positive externality) by raising the production ofapples in the nearby orchard. So, the social efficiency would occur at the point where MC =MSB. In this case, if the beekeeper installs 10 units of beehives then social efficiency can beachieved.So, Q = 8 units of beehives is optimal for the beekeeper but Q* = 10 units of beehives is sociallyefficient. In the above figure, Ep is the private equilibrium for the beekeeper while E* is socially efficient.costs& benefit250200150EpE*100MCMSB50MPB2481012QpQ* no. of beehives2. The Coase theorem suggests that if the involving parties can bargain costlessly then allsorts of externalities would be internalized and socially efficient level would beproduced at the equilibrium.In this case, since the two parties (beekeeper and the owner of apple orchard) cannotnegotiate costlessly so the social equilibrium will not be ensured in the market. In other words,the beekeeper drive by profit motive would try to maximize his own gains by installing 8 unitsof beehives although it is not socially efficient.LO

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Consider a beekeeper. The beekeeper has the following production function where the input is the number of hives and the output is quantity of honey produced. Beehives 1 2 3 4 5 6 7 8 9 10 11 Honey 12 23 33 42 50 57 66 71 75 78 80 The cost of installing a beehive is $100 and the price of a unit of honey (whatever that is...) is $20. Also each beehive increases the output of apples at a nearby apple orchard by $40. QUESTION 1,2,3 have already been answer I only need the explaination and answer for question 4 and 5 1. What is the efficient number of beehives? 2. If there are barriers to negotiation between the beekeeper and the orchardist, how many will the beekeeper install? 3. What if the same person owned the beehives AND the orchard? How many beehives would that person install? 4. Go back to assuming that the beehives and the orchard are owned by different people. Let's say we want to get the efficient quantity by putting a subsidy on beehives. How much should it be per hive?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a beekeeper. The beekeeper has the following production function where the input is the number of hives and the output is quantity of honey produced.

Beehives 1 2 3 4 5 6 7 8 9 10 11

Honey 12 23 33 42 50 57 66 71 75 78 80

The cost of installing a beehive is $100 and the price of a unit of honey (whatever that is...) is $20. Also each beehive increases the output of apples at a nearby apple orchard by $40.

QUESTION 1,2,3 have already been answer I only need the explaination and answer for question 4 and 5

1. What is the efficient number of beehives?

2. If there are barriers to negotiation between the beekeeper and the orchardist, how many will the beekeeper install?

3. What if the same person owned the beehives AND the orchard? How many beehives would that person install?

4. Go back to assuming that the beehives and the orchard are owned by different people. Let's say we want to get the efficient quantity by putting a subsidy on beehives. How much should it be per hive?

5. What if we wanted to subsidize honey instead? How much should that subsidy be per unit? (Round to one decimal place.)

MR of apples
TR of honey MR of honey
(P*Q)
no. of
units of
beehives
honey
= MPB
MC
= MSB
%3D
1
12
240
240
100
280
2
23
460
220
100
260
3
33
660
200
100
240
4
42
840
180
100
220
50
1000
160
100
200
57
1140
140
100
180
7
66
1320
180
100
220
8
71
1420
100
100
140
75
1500
80
100
120
10
78
1560
60
100
100
11
80
1600
40
100
80
1. In this problem, the personal gain of the beekeeper is the revenue he earns from the sale
of honey. So, the marginal (MR) revenue of honey can be interpreted as the MPB
(marginal private benefit) of the beekeeper. The profit maximization of a private firm
would take place at the point where MR= MPB = MC. So the rational beekeeper driven by
profit motive would install 8 units of beehives as MPB = MC for this level.
Again, the bees generate additional benefit (positive externality) by raising the production of
apples in the nearby orchard. So, the social efficiency would occur at the point where MC =
MSB. In this case, if the beekeeper installs 10 units of beehives then social efficiency can be
achieved.
So, Q = 8 units of beehives is optimal for the beekeeper but Q* = 10 units of beehives is socially
efficient.

In the above figure, Ep is the private equilibrium for the beekeeper while E* is socially efficient.
costs
& benefit
250
200
150
Ep
E*
100
MC
MSB
50
MPB
2
4
8
10
12
Qp
Q* no. of beehives
2. The Coase theorem suggests that if the involving parties can bargain costlessly then all
sorts of externalities would be internalized and socially efficient level would be
produced at the equilibrium.
In this case, since the two parties (beekeeper and the owner of apple orchard) cannot
negotiate costlessly so the social equilibrium will not be ensured in the market. In other words,
the beekeeper drive by profit motive would try to maximize his own gains by installing 8 units
of beehives although it is not socially efficient.
LO

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