Figure 18P-2 shows the marginal private benefit to a U.S. farmer for irrigating his land. It costs $100 per acre to irrigate the land. Each acre of land irrigation generates a gallon of salty runoff that winds up in the Colorado River. It costs $50 per gallon to desalinate the river water so Mexican farmers can irrigate their crops.

a. Draw the marginal private cost of irrigation on the graph.
b. Draw the marginal social cost of irrigation on the graph.
c. How many acres will the U.S. farmer irrigate?
d. What is the efficient level of irrigation?
e. What would be the total gain in surplus if this externality could be internalized?

Transcribed Image Text:

Price (S) 250 175 125 100 PB 0 10 20 30 40 50 60 70 80 90 100 110 Irrigation (acres)