Cows graze on common pasture and can produce milk in the amounts shown in Table 1. The marginal private cost of producing milk is zero.

1. What is the quantity of milk produced if use of the common pasture is not regulated? Use a graph to illustrate your answer.

2. What is the efficient quantity of milk to produce? On a graph show the deadweight loss from overproduction.

3. If the common pasture were converted to private land and fenced off, what quantity of milk would be produced?

4. If ITQs were issued for the efficient quantity of milk production, what would be the market price of an ITQ?

Transcribed Image Text:

TABLE 1 Quantity of milk (gallons per day) 0 20 40 60 80 100 Marginal Marginal external social benefit cost (dollars per gallon) O24 0 6 8 10 15 12 9 6 3 ليا - 0