17.2 On the island of Majorca there are 2 lakes and 20 anglers. Each angler can fish...
Question:
17.2 On the island of Majorca there are 2 lakes and 20 anglers.
Each angler can fish on either lake and keep the average catch on his particular lake. On Lake x, the total number of fish caught is given by F x = 10lx −
1 2
l 2 x , where lx is the number of people fishing on the lake. For Lake y, the relationship is F y = 5ly.
a. Under this organisation of society, what will be the total number of ish caught?
b. 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?
c. 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)?
d. Explain how this example sheds light on the connection between property rights and externalities.
Step by Step Answer:
Microeconomic Theory Basic Principles And Extensions
ISBN: 9781473729483
1st Edition
Authors: Christopher M Snyder, Walter Nicholson, Robert B Stewart