Assume the total value of food produced using herbicides and...

Question

# Assume the total value of food produced using herbicides and...

1. Assume the total value of food produced using herbicides and pesticides (total benefits) to society (in dollar terms measuring willingness-to-pay) is given by the expression:

Total Benefits (TB) = 1000Q -0.25Q2, where Q is the quantity of paper produced.

So, Marginal Benefits (MB) = 1000 - 0.5Q

Further assume the total costs of food produced using herbicides and pesticides that are directly borne by producers (Total Private Cost) are given by:

Total Private Costs (TPC) = 150Q + 0.10Q2

So, Marginal Private Costs (MPC) = 150 + 0.2Q

Additionally, there are pollution damage costs due to runoff in a local water source for which the external total cost can be described by the equation:

External Total Costs (ETC) = 100Q + 0.15Q2

So, Marginal External Total Costs (METC) = 100 + 0.3Q

Finally, assume that the technology is fixed (i.e., no choices by the firm can decrease either private or external costs for a given amount of output).

1. If the food production market is competitive and in all other ways operates according to the theory of supply and demand, and if the externality is uncorrected, what will be the market equilibrium, in terms of the resulting output level and price? (10 points)

1. What would be the socially optimal level of output? Describe how it differs from the market outcome. (10 points)

1. Assume there is a land dispute between a large international farming firm and a local farmer who has been on the land for 20 years. Discuss how the result of the conflict is likely to be different if the disagreement occurs in the United States (or some other developed economy) versus a country with a developing economy with severe internal conflicts (think parts of sub-Saharan Africa). Explain/justify your answer. (5 points)

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