(24 points) Assume that we have Mega Farms and the City of Metropolis withdraw water from a river. Historically, the flow of the river is about 25 AF per year. However, climate change has affected the flow of the river, so that there is only 16 AF of water flowing in the river than the historical flow. The farm holds senior rights to water. The water is allocated based on the prior approbation doctrine where the farms has more senior water rights than the city. The farm holds rights for 10 AF of water that is senior, and the city has water rights that allow them to withdraw 15 AF per year but the rights are junior, meaning that if there is shortage, the senior right holders (Mega Farms) will need to receive all their water first before the city can withdraw any water. $ 30 MNBmun 20 18 10 6 City O 16 4 12 10 60 8 12 8 24 30 20 20 MNBag 10 15 16 10 Farm Water (AF) In the baseline, without any intervention: How much water do Mega Farms withdraw with 16 AF of water available? AF (2) How much water does the city withdraw with 16 AF of water available? AF (2) What would be Mega Farms' net benefits under this allocation? What would be the city's net benefits under this allocation? AF (2) AF (2) Now assume that water rights transactions are allowed, and you are hired by the city to provide policy advice regarding the amount of water that they should purchase from the Mega Farms. How many Acre-feet of water do you recommend the city to buy from the farm? _ AF (2) How much would you recommend the city to pay for an acre-foot of water? $ ____ (2) Under the efficient allocation, what would be the revenue for the farm? $_ (2) Abatement cost for the farm in this case is the total cost of reducing water use by a certain amount Under the efficient allocation, what would be total abatement cost for the farm (excluding revenues from selling water rights)? $ (2) Under the efficient allocation, what would be total earnings for the farm (i.e., from revenues of selling water rights and the costs of abatement)? $ (2)