This assignment is a Coase problem from the text. But I have tweaked it a bit, as I am wont to do. 1. (20 pts) Rancher Roy has a ranch next to the fields of farmer Fern. Cattle being cattle, they sometimes stray onto Fern's land and damage her crops. Roy can choose the size of his herd. His marginal revenue for each steer he grazes is $6. The following costs apply to raising cattle, where MPC is the marginal private cost of raising cattle (feed, maintenance, etc.) and MDC is the marginal cost of damage done to Fern's crops. No. of cattle MPC($) MDC($) 1 3 1 2 3 2 3 4 3 4 5 4 5 6 5 6 7 6 Fern can only make one choice: to farm or not to farm (that is the question...). Her total cost of production on her farm is $10 and her total revenue is $12 when there are no cattle running loose. Each steer being grazed reduces her revenue by the amount in the MDC column, savvy? (a) Add a column to the table representing the marginal social cost (MSC) of grazing cattle. (3 pts) (b) How many grazing cattle will it take to put Fern out of business (.i. to reduce her net benefit to zero)? (3 pts) (c) What is the socially efficient outcome, where 'society' here consists of Fern and Roy, and by "outcome I mean how many cattle are grazed and how much farming is done? Consider carefully the choices that each person can make. (4 pts) (d) If Roy is not liable for any damages caused to Fern's crops, how will this outcome be achieved (Coase says it will be)? (5 pts) (e) If Roy is liable for damage to Fern's crops, how will this outcome be achieved (Coase says it will be)? (5 pts) This assignment is a Coase problem from the text. But I have tweaked it a bit, as I am wont to do. 1. (20 pts) Rancher Roy has a ranch next to the fields of farmer Fern. Cattle being cattle, they sometimes stray onto Fern's land and damage her crops. Roy can choose the size of his herd. His marginal revenue for each steer he grazes is $6. The following costs apply to raising cattle, where MPC is the marginal private cost of raising cattle (feed, maintenance, etc.) and MDC is the marginal cost of damage done to Fern's crops. No. of cattle MPC($) MDC($) 1 3 1 2 3 2 3 4 3 4 5 4 5 6 5 6 7 6 Fern can only make one choice: to farm or not to farm (that is the question...). Her total cost of production on her farm is $10 and her total revenue is $12 when there are no cattle running loose. Each steer being grazed reduces her revenue by the amount in the MDC column, savvy? (a) Add a column to the table representing the marginal social cost (MSC) of grazing cattle. (3 pts) (b) How many grazing cattle will it take to put Fern out of business (.i. to reduce her net benefit to zero)? (3 pts) (c) What is the socially efficient outcome, where 'society' here consists of Fern and Roy, and by "outcome I mean how many cattle are grazed and how much farming is done? Consider carefully the choices that each person can make. (4 pts) (d) If Roy is not liable for any damages caused to Fern's crops, how will this outcome be achieved (Coase says it will be)? (5 pts) (e) If Roy is liable for damage to Fern's crops, how will this outcome be achieved (Coase says it will be)? (5 pts)