A beekeeper lives adjacent to an apple orchard. The orchard owner benefits from the bees as each hive pollinates one acre of apple trees. This pollination costs the farmer nothing. The bees come to the orchard without any effort on the part of the farmer. Since there are not enough hives to pollinate the entire orchard, the farmer must complete the pollination by artificial means, at a cost of $10 per acre. Beekeeping
has a marginal cost MC = 10 + 2Q where Q is the number of beehives. Each hive yields
$20 worth of honey.
a) What market phenomenon does this situation represent?
b) How many beehives will the beekeeper maintain?
c) How much value does this number of hives create for the farmer?
d) Is this the efficient number of hives from the social point of view? Explain.
e) Suggest an arrangement, alternative practice or policy that might lead to the more
socially efficient number of beehives.
