ECON 4036 – Consider two dairy farms B and C

ECON 4036 – Consider two dairy farms B and C

Subject: Economics    / General Economics
Question

Question 2 – [24 marks]

Consider two dairy farms B and C. They send their cows to the commons. If farm B sends b

cows and farm C sends c cows to the commons, the milk production (in kiloliters, kl) per cow

is:

f(b,c) = 300 ? (b+ c)

This is the same for all cows of both farms. The cost of milk production is:

f(b, c) = 90 × z

If a farm keeps zcows, and this the same for both farms. The market price of milk per klis 1.

a. Show that the commons will be over-exploited. [20 marks]

b. Suggest two solutions that the village chief can use to overcome the over exploitation of

the commons by the two farms. [4 marks]