QUESTION 5. Open Access/Common Pool Resources NOTE: the situation described belo

Question

QUESTION 5. Open Access/Common Pool Resources NOTE: the situation described below is exactly the same as the situation with Open Access Ocean Fishery described in class notes. In this case, the open access reso aquifer (water underground can be drawn from wells by anyone). 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 gallons per day filter into the underground resource, replenishing the aquifer), which could be regarded as the maximum sustainable withdrawal. The total product schedule for well looks like this (empty rows are just some suggestions you might or might not consider in answering the question) operations number of Wells Operating Total water output C 2010 4030 30 40 50 60 70 80 90 (,000 Gal./Day) 100 200 280 340 380 400 400 380 340 Total Pumping Cost Sper Wel AT Marginal Revenue 377m Per Well Cost Total Profit Average Profit per Well Marginal Profit The cost of opemting one well Charginal cos is 600 pesos r day, The valuc of water to a farmer is 0.I peso per gallon.

Explanation / Answer

Total Pumping Cost=Marginal Pumping Cost per well * Number of wells

No of Well 10 20 30 40 50 60 70 80 90 Total Water Output 100000 200000 280000 340000 380000 400000 400000 380000 340000 Total Revenue 1000000 4000000 8400000 13600000 19000000 24000000 28000000 30400000 30600000 Total Pumping Cost 6000 12000 18000 24000 30000 36000 42000 48000 54000 Average Revenue per Well 100000 200000 280000 340000 380000 400000 400000 380000 340000 Marginal Revenue per Well 300000 440000 520000 540000 500000 400000 240000 20000 Marginal Pumping Cost 600 600 600 600 600 600 600 600 Total Profit 994000 3988000 8382000 13576000 18970000 23964000 27958000 30352000 30546000 Average Profit per Well 99400 199400 279400 339400 379400 399400 399400 379400 339400 Marginal Profit 299400 439400 519400 539400 499400 399400 239400 19400

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