Managerial Economics 2nd Edition by William Boyes

Exercise 10

A beekeeper, Yung, lives next to an apple orchard. She not only benefits from the bees' honey, which she sells, but she also creates a positive externality for her apple grower neighbor: Yung's bees help pollinate the apple trees so the apple grower can grow more apples. Yung's total cost and benefit for keeping her bees is the following:

a. Ignoring the externality, how many bees will be kept?
b. If the apple grower wants to see 6,000 bees kept, what is the value of the externality? What would have to happen for the socially optimal (including externality) amount of bees to be kept?