Question: 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

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. Farmers 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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