A village has five residents, each of whom has accumulated savings of $200

1. The villager will buy a year-old goat if it will command a price of at least $220 as a 2-year old. The reason for this is that, with 10% interest on government bonds, he can earn $20 from that form of investment. He would not choose a lower return on his $200 investment than $20.

2. The following table extends the earlier table by adding columns for total revenue (TR) and marginal revenue (MR).

Without assigning the property right to an individual, villagers will act in their own best interests as they perceive the situation. If they do not know what other villagers will do so that each acts independently, they all might expect to get the $52 MR (shown in the last column of the table) from having the only goat grazing on the common land. If this is the case then the situation could wind up with as many as 5 goats grazing on the land. In that case, from column 3, only $6 would be earned per goat, which is $14 less in income than each villager could have made from investing in the government bond at a 10% return.

3. If the property right is assigned to an individual, 3 goats will be raised on the commons. The villager acquiring the property right will maximize his own return. This occurs where TR is at a maximum of $87 in column 4 of the table, with 3 goats being grazed. Note that this is also the last point for which MR is positive in column 5 of the table. He will graze his own goat and sell 1 spot each to two other villagers for $9 each. He can do this because, from column 3, the income from each goat with 3 goats grazing will be $29 per goat. His total revenue will then be: $29 from his own goat + $18 from the two other villagers = $47. Each of the two other villagers will sell his goat at the end of the year for $29, making a profit of $20 each (i.e., $29 - $9). The total revenue accruing to all 3 farmers will be $47 + $20 + $20 = $87, which is the TR shown in column 4 of the table.

It should be noted that, even without the assignment of property rights in this case, there is a chance that the 5 villagers might stumble on this solution on their own. This could occur is each knows the effect of added numbers on the productivity of grazing and each knows sequentially how many farmers are grazing. Once the grazing number reaches 3, the fourth and fifth villagers will know that they will lose money by buying a goat so they will invest in the government bond.