microeconomics, economics

timer Asked: Nov 27th, 2015

Question description

A beekeeper and a farmer with an apple orchard are neighbors. This is convenient for the orchard owner 
since the bees pollinate the apple trees: one beehive pollinates one acre of orchard. Unfortunately, there are not enough bees next door to pollinate the whole orchard and pollination costs are $10 per acre. The 
beekeeper has total costs of TC = H 
2 + 10 × H + 10 and marginal costs MC = 10 + 2 × H where H is the 
number of hives. Each hive yields $20 worth of honey. (In the space below, draw a graph with H on the 
horizontal axis and cost/benefit on the vertical axis.) 
1. How many hives would the beekeeper maintain if operating independently of the farmer? 
2. What is the socially efficient number of hives? 
3. In the absence of transaction costs, what outcomes do you expect to arise from bargaining between 
the beekeeper and the farmer?

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