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Safari File Edit View History Bookmarks Window Help ng.cengage.com MindTop Nicholas G Markets and Government : Aplia Homework 5. Optimal e Aa A small community is located near a bay. There are five people in the community, each of whom has accumulated and sell the crabs they catch in the bay (assume the savings of $1,000. Each person can either buy a fishing boat boat does n not depreciate over time), or buy a government bond that pays 13% interest. Thus, someone who chooses not to buy a boat will eam $130 of income each year Crabs sell for $10 per pound. The more total number of crabs caught and the total value of the crabs caught by each person are sell for $10 per pound. The more people who choose to fish in the bay, the fewer crabs each will catch. The number of crabs caught and the total value of the crabs caught by each person are shown by the following Crabs Caught (Pounds per year) 18 32 Income per Boat (Dollars per year) 180 $160 $140 120 100 Number of Boats 50 Suppose that of the five villagers, two (Mario and Nicholas) say they are definitely going to buy boats and fish, and two (Nicole and Steve) say they are definitely going to buy govenment bonds. The fifth, Joann, is undecided If Joann chooses to buy a boat and fish, she will earn money in a govenment bond. than the $130 she could get from investing her 3 5 8 9 O P

Explanation / Answer

if jennifer choose to buy a boat , she will earn more than the $130 because since jennifer is fishing and with two more boats in the bay ( at this time total 3 boats fishing in the bay) and thus each boat will be earning $140 as table describes it.

John and arnold's

total income

cecilia and steve

total income

total

income

(if jennifer is fishing then 3 people having boat and first and other two are purchasing t-billis.

so total income is ( 3 * 140 ) + ( 2* 130 ) = $680

if jennifer buys t-bill then, only 2 boats in the bay and 3 people having t-bills. then total income will be

2*160 + 3*130 = $710. )

if jennifer were to buy a boat and fish , the total income earned by all residents of the community would Decrease.

the socially efficient number of fishing boats is 2 boats. ( at two boats level , total income earned by five people is 2*160 + 3*130 = $710 which is higher than any other boat level . )

suppose the bay is on jennifer's property so she can legally charge people to fish in it. if jennifer chosses not buy a boat john and arnold will be willing to pay atmost $30 each to fish in her bay, and she will earn an income of at most $190 . if she does buy a boat and fish, arnold and john will be willing to pay at most $10 each to fish in her bay. and she will earn an income of atmost $ 160 .

if jennifer is able to charge the highest price arnold and john are willing to pay, jennifer maximizes her income if she buys a T-bill and sells fishing rights to arnold and john .

if the bay is held as private property rather than commonly held by all the residents of the village , the socially optimal number of boats will be bought .

jennifer's decision fish caught

John and arnold's

total income

cecilia and steve

total income

jeniffers income

total

income

invest her money 32 $320 $260 $130 $710 buy a boat and fish 42 $280 $260 $140 $680

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