Microeconomics 6th Edition by Robert Hall, Shirley Kuiper, Marc Lieberman

Exercise 2

A beekeeper is a price taker in the market for honey. At the profit-maximizing output level,the beekeeper earns $20 in revenue per day,but has costs of $30 per day-not enough to stay in business. It turns out,however,that the bees can create a positive externality by pollenating a neighboring farmer's crops- if the beekeeper positions the hives near the farmer's field. The pollination would provide benefits of $15 per day for the farmer.
a. Is it economically efficient for the beekeeper to keep operating? Why or why not?
b. If the beekeeper has the legal right to charge the farmer for "pollination services," would we expect the farmer and beekeeper-without government intervention-to arrive at the efficient outcome? Explain briefly. [Hint: The Coase theorem applies.]
c. If the farmer has the legal right to enjoy "pollination services" without paying,would we still expect the farmer and beekeeper-without government intervention-to arrive at the efficient outcome? Explain briefly.