Problem : Brackley Beach Management

 

Brackley Beach is a small beach located 12.7 miles from downtown Charlottetown. The table below provides data on the potential number of visitors, the individual marginal willingness to pay, the individual cost per visit, the total cost per visit, and the aggregate willingness to pay.

Table: Data on willingness to pay and costs of potential visitors Beach

Number of visitors	Individual marginal willingness to Pay (WTP)	Aggregate Willingness to Pay (AWTP)	Individual Cost per visit	Total Costs (TC)	Net aggregate Willingness to Pay (AWTP -TC)
1	$42	$42	$14	$14	$28
2	$42	$84	$14	$28	$56
3	$42	$126	$14	$42	$84
4	$35	$140	$14	$56	$84
5	35	$175	$14	$70	$105
6	$32	$192	$14	$84	$108
7	29	$203	$14	$98	$105
8	$26	$208	$14	$112	$96
9	23	$207	$14	$126	$81
10	$20	$200	$14	$140	$60
11	17	$187	$14	$154	$33
12	$15	$180	$14	$168	$12
13	11	$143	$14	$182	-$39
14	$8	$112	$14	$196	-$84

The cost of visiting the beach (travel cost) is the same for every visitor, $14.

• Suppose the beach is an open-access resource. How many people will visit the beach?

• From the aggregate social perspective, what is the efficient level of beach visitation?

• Explain why there is a difference between the open-access number of visitors and the efficient level of beach visitors.

How can policymakers reach the socially efficient visitation level

Problem 4: Water management

Farmers in an arid region of Mexico draw their irrigation water from an underground aquifer. The aquifer has a natural maximum recharge rate of 340,000 gallons per day (that is, 340,000 gal/day filter into the underground reservoir from natural sources). The total product schedule for well operations looks like this:

Wells Operating	Total Water Output	Total revenue (Assuming 0.1 pesos per gallon of water)	Average revenue per well	Cost of operating a well per day	Total costs	Aggregate net revenue
10	100000	10000 pesos	1000 pesos	400 pesos	4000	6000
20	200000	20000 pesos	1000 pesos	400 pesos	8000	12000
30	270000	27000 pesos	900 pesos	400 pesos	12000	15000
40	340000	34000 pesos	850 pesos	400 pesos	16000	18000
50	370000	37000 pesos	740 pesos	400 pesos	20000	17000
60	400000	40000 pesos	667 pesos	400 pesos	24000	16000
70	400000	40000 pesos	571.4 pesos	400 pesos	28000	12000
80	380000	38000 pesos	475 pesos	400 pesos	32000	6000
90	340000	34000 pesos	377.7pesos	400 pesos	36000	-2000
100	320000	32000 pesos	320 pesos	400 pesos	40000	-8000

1. If each well is privately owned by a different farmer, how many wells will operate? Justify your answer. ?
2. What would be the economically efficient number of wells? Show that net social benefit is maximized at this level of output. ?
3. How could the socially efficient equilibrium be achieved?
4. Suppose that the cost of well operation increase to 650 pesos per day. What would be the socially efficient number of wells?