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Consider a 100-acre hay farm that uses a legal pesticide to kill birds that would otherwise eat 50% of the crop. The farm is very
Consider a 100-acre hay farm that uses a legal pesticide to kill birds that would otherwise eat 50% of the crop. The farm is very remote and there is no movement of the pesticide off the farm. Pesticide costs are $1,000 per acre. Other costs are also $1,000 per acre and do not depend on the quantity harvested. When the birds are killed, the gross revenue from selling the hay crop is $5,000 per acre. The farmer likes birds and wishes he could save them, but it is only worth a total of $1,000 to him a. From the facts given, is there an externality from the farm killing birds? Explain. f. If hay gross revenue rises to $6,000 per acre, is the externality likely to end? Explain and show calculations
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