Suppose a lake is publicly owned, i.e. a common property resource, with free fis
ID: 1165896 • Letter: S
Question
Suppose a lake is publicly owned, i.e. a common property resource, with free fishing for all. The number of fish caught varies with the number of people fishing as follows:
Labour Total Product
1 13
2 25
3 36
4 46
5 55
6 63
7 70
8 76
9 81
Assume the market price of these fish is $10 per fish, and this price is not affected by the number of fish caught in this lake. Assume that all fishermen can earn $100 per day in their next best alternative. Assume the fishermen share equally in the proceeds of the lake.
a) Explain much fishing will occur in a common property setting.
b) Assume now that the lake is privately owned and the owner hires fishermen for $100 per day. How much fishing would the owner allow?
c) Why is the common property result considered to be inefficient?
Explanation / Answer
a)
L
TP
AP
VAP
TC
TR
Rent
1
13
13
130
100
130
30
2
25
12.5
125
200
250
50
3
36
12
120
300
360
60
4
46
11.5
115
400
460
60
5
55
11
110
500
550
50
6
63
10.5
105
600
630
30
7
70
10
10
700
700
0
8
76
9.5
95
800
760
-40
9
81
9
90
900
810
-90
Common property results to too much fishing because there are no restriction imposed thus the fishers will fish until thers is no more fish, thus when rent equals zero. There will be 7 fisherman
?
b)
L
TP
MP
VMP
TC
TR
Rent
1
13
13
130
100
130
30
2
25
12
120
200
250
50
3
36
11
110
300
360
60
4
46
10
100
400
460
60
5
55
11
110
500
550
50
6
63
8
80
600
630
30
7
70
7
70
700
700
0
8
76
6
60
800
760
-40
9
81
5
50
900
810
-90
Lake will hire when wage equals VMP. The wage and VMP is 100 at 4 workers.
?
c) A well defined property rights help a country to achieve the economically efficient outcomes. In it's absence i.e. when the property is considered as the ‘common property’, the outcome will always be economically inefficient because there are no restriction imposed
L
TP
AP
VAP
TC
TR
Rent
1
13
13
130
100
130
30
2
25
12.5
125
200
250
50
3
36
12
120
300
360
60
4
46
11.5
115
400
460
60
5
55
11
110
500
550
50
6
63
10.5
105
600
630
30
7
70
10
10
700
700
0
8
76
9.5
95
800
760
-40
9
81
9
90
900
810
-90
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