Question: 3. There are two farmers with different allocations for surface water in a given year. Farmer 1 has 5ML (megalitre) of water available. The marginal

3. There are two farmers with different allocations for surface water in a given year. Farmer 1 has 5ML (megalitre) of water available. The marginal net benefit from water use for Farmer 1 is MNB1 = $80 - 7W1 (recall that MNB is defined as value of the marginal product net of marginal factor cost, i.e. VMP - MFC). Farmer 2 has 10 ML of water available. Farmer's 2 marginal net benefit from water use is MNB2 = $40 - 3W2. If the two farmers are allowed to trade (assuming no transactions cost), what will be the quantity traded? What will be the price?

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