Two farms draw water from the same well. Each complains that the other is taking too much water. How would merging the farms help to resolve the problem?
A) Each farm would balance its marginal benefit with the combined marginal cost of water.
B) The merged farm would balance the combined marginal benefit with the marginal cost of water.
C) The merged farm would maximize profit.
D) All of the above.

Question

Quizplus · Accepted Answer

Merging the farms would internalize the externality, allowing the combined entity to balance the overall marginal benefit of water usage with the marginal cost, leading to more efficient water usage.

Two Farms Draw Water from the Same Well