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Homework answers / question archive / A beekeeper and the owner of an orange orchard have a synergistic relationship
A beekeeper and the owner of an orange orchard have a synergistic relationship. The beekeeper benefits from putting his beehives in the orchard since his bees make honey from the orange blossom pollen. The orchard owner benefits from having the beehives in his orchard since the bees pollinate his trees. There is a reciprocal positive externality. The table below gives the profit of the beekeeper and the orchard owner as a function of the number of beehives that the beekeeper places in the orchard, before any transfer between them.
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | |
|---|---|---|---|---|---|---|---|---|
| beekeeper | 0 | 4 | 8 | 11 | 10.5 | 7 | 3 | -1 |
| orchard | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| sum | 0 | 5 | 10 | 14 | 14.5 | 12 | 9 | 6 |
Assume that the above table is common knowledge to both the orchard and beekeeper, that bargaining is costless, and that there are no other orchards or beehive owners.
Suppose that the beekeeper has the property right to place his beehives in the orchard.
a. What is the equilibrium number of beehives in the orchard?
b. Is the equilibrium efficient?
a. The maximum output produces by the orchard at the point of 6 or 7. At this point, the beekeeper holding the minimum advantage and will charge the amount of 4, but this will not be considered as the optimal production socially.
b. No, the equilibrium is inefficient because the production is not done at an optimal level, and resources are not fully utilized.
