Suppose that a beekeeper makes honey, which she sells in a competitive market with an equilibrium price P H = 20. The total cost of producing honey is T CH = H2 + 8H, where H denotes the quantity of honey produced. The beekeeper is located next to an orchard that grows apples that the orchard owner sells on a competitive market at a price P A = 40. The total cost of producing apples is T CA = 2A2 + 48A 2HA, where A denotes the quantity of apples. Note that the cost of producing apples depends on the amount of honey. The idea is that more honey requires more bees, and the more bees there are, the easier it is to grow apples. The benefit that bees provide to the orchard is a classic example of an externality