17.3 Under this organisation of society, what will be the total number of ish caught?

The chief of Majorca, having read an economics book, believes it is possible to increase the total number of ish caught by restricting the number of people allowed to ish on Lake x. What number should be allowed to ish on Lake x in order to maximise the total catch of ish? What is the number of ish caught in this situation?

Being opposed to coercion, the chief decides to require a ishing licence for Lake x. If the licensing procedure is to bring about the optimal allocation of labour, what should the cost of a license be (in terms of ish)?

Explain how this example sheds light on the connection between property rights and externalities.

Suppose the oil industry in Petronolia is perfectly competi tive and that all firms draw oil from a single (and practi cally inexhaustible) pool. Assume that each oil producer believes that it can sell all the oil it can produce at a stable world price of €10 per barrel and that the cost of operating a well for one year is €1000.

Total output per year (Q) of the oil field is a func tion of the number of wells (n) operating in the field. In particular, Q =500n − n2, and the amount of oil produced by each well (q) is given by q = Q n = 500 − n.

a.

(17.75)

Describe the equilibrium output and the equilibrium number of wells in this perfectly competitive case. Is there a divergence between private and social marginal cost in the industry?

b.

Suppose now that the government nationalises the oil ield. How many oil wells should it operate?

What will total output be? What will the output per well be?

c.