Four towns share a common water source. By buying open land along the watershed

(area from which the water flows) they can preserve its purity from sewage, road runoff, etc. The land demand schedule for each town based on water treatment costs saved can be expressed as:

P = $34,000 − 10 Qd where Qd is acres purchased, and P is the price per acre that the town would be willing to pay.

a) If the cost of land is $30,000 per acre, how much land will be purchased if each town operates independently?

b) Suppose the four towns form a joint commission for land purchases. Now how much land will be purchased? Show the situation graphically. (If the economic theory is not clear, imagine representatives of the four towns sitting around a table, discussing the costs and benefits of purchasing different amounts of land.)

c) What is the socially efficient solution and why? Discuss this in terms of the demand for clean water. Is clean water a public good in this case? Can water generally be considered to be a public good?

d) Suppose that the price of land was $36,000 per acre instead. Now how many total acres would be purchased if each town acted independently? How many acres would be purchased if they formed a joint commission?