(a) What would be the economically efficient number of wells? (Solve to the nearest multiple 10 wells.) Explain why social benefits (profits) are maximized at this level of output. [Hint: Calculate the total revenue and marginal revenue for each number of wells.] (b) If each well is privately owned by a different farmer without any regulations, how many wells will operate? (Solve to the nearest multiple 10 wells, or for example, you could say between 10 and 20 wells.) Is this number of wells economically efficiency? Also, is this number of wells ecologically sustainable in the long-term? [Hint: Calculate the average revenue for each number of wells.]e (c) Suppose a new technology is adapted that reduces the cost of operating a well from 600 to 400 pesos. Now what is socially efficient (i.e. profit maximizing) number of wells with the new technology? How has the introduction of this new technology affected environmental sustainability?
(a) What would be the economically efficient number of wells? (Solve to the nearest multiple 10 wells.) Explain why social benefits (profits) are maximized at this level of output. [Hint: Calculate the total revenue and marginal revenue for each number of wells.] (b) If each well is privately owned by a different farmer without any regulations, how many wells will operate? (Solve to the nearest multiple 10 wells, or for example, you could say between 10 and 20 wells.) Is this number of wells economically efficiency? Also, is this number of wells ecologically sustainable in the long-term? [Hint: Calculate the average revenue for each number of wells.]e (c) Suppose a new technology is adapted that reduces the cost of operating a well from 600 to 400 pesos. Now what is socially efficient (i.e. profit maximizing) number of wells with the new technology? How has the introduction of this new technology affected environmental sustainability?
Chapter1: Making Economics Decisions
Section: Chapter Questions
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(c) Indicate a (license) fee, in pesos per day, that the government could charge to achieve the socially efficient (i.e. profit maximizing) number of wells.
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