3. The figure to the right shows the marginal privatebenefits to a US farmer for irritating her land(suppose there are no external benefits). It costs$100 per acre to irrigate the land. Each acre of landirrigation generates a gallon of salty runoff that windsup in the Colorado River. It costs $50 per gallon toPrice ($)275250225200175desalinate the river water so Mexican farmers canirrigate their crops.a. Draw the marginal private cost of irrigation onthe graph.b. Draw the marginal social cost of irrigation on thegraph.c. How many acres will the US farmer irrigatebased on private incentives?d. What is the socially efficient level of irrigation?e. What would be the total gain in surplus if thisexternality were fully internalized within the market?150125100755025MPB10 20 3040 50 60 70 8090 100 110Irrigation (acres)

Marginal private cost is the cost incurred by a producer in production of a commodity. Marginal…

The figure to the right shows the marginal private benefits to a US farmer for irritating her land (suppose there are no external benefits). It costs $100 per acre to irrigate the land. Each acre of land irrigation generates a gallon of salty runoff that winds up in the Colorado River. It costs $50 per gallon to Price ($) 275 250 225 200 175 desalinate the river water so Mexican farmers can irrigate their a. Draw the marginal private cost of irrigation on the graph. b. Draw the marginal social cost of irrigation on the graph. c. How many acres will the US farmer irrigate based on private incentives? d. What is the socially efficient level of irrigation? e. What would be the total gain in surplus if this externality were fully internalized within the market? 150 crops. 125 100 75 50 25 MPB 10 20 30 40 50 60 70 80 90 100 110 Irrigation (acres)

The figure to the right shows the marginal private benefits to a US farmer for irritating her land (suppose there are no external benefits). It costs $100 per acre to irrigate the land. Each acre of land irrigation generates a gallon of salty runoff that winds up in the Colorado River. It costs $50 per gallon to Price ($) 275 250 225 200 175 desalinate the river water so Mexican farmers can irrigate their a. Draw the marginal private cost of irrigation on the graph. b. Draw the marginal social cost of irrigation on the graph. c. How many acres will the US farmer irrigate based on private incentives? d. What is the socially efficient level of irrigation? e. What would be the total gain in surplus if this externality were fully internalized within the market? 150 crops. 125 100 75 50 25 MPB 10 20 30 40 50 60 70 80 90 100 110 Irrigation (acres)

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section9.4: The Precision Tree Add-in

Problem 9P

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