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6 November, 22:57

A beekeeper lives adjacent to an apple orchard. The orchard owner benefits from the bees because each hive pollinates about one acre of apple trees. The orchard owner pays nothing for this service, however, because the bees come to the orchard without his having to do anything. Because there are not enough bees to pollinate the entire orchard, the orchard owner must complete the pollination by artificial means, at a cost of $10 per acre of trees. Beekeeping has a marginal cost

MC = 10 + 5Q

where Q is the number of beehives. Each hive yields £50 worth of honey.

A) Assuming the beekeeper wishes to maxmise his profits, how many beehives will the beekeeper maintain?

B) What is the socially effiecient number of hives?

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Answers (1)
  1. 6 November, 23:59
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    A. The number of beehives to be maintained is 8

    B. The socially effiecient number of hives is 10

    Explanation:

    A. In order to calculate the amount of beehives that the beekeeper will maintain assuming the beekeeper wishes to maxmise his profits we would have to use the equality of MC and the price and can be calculated as follows:

    P=MC

    50=10 + 5Q

    Q=8

    The number of beehives to be maintained is 8

    B. To calculate the socially effiecient number of hives we would have to equating the marginal social benefit and marginal cost as follows:

    The orchard owner must complete the pollination by artificial means, at a cost of $10 per acre of trees, therefore,

    MSB=MC

    50+10=10 + 5Q

    Q=10

    The socially effiecient number of hives is 10
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