A and B may decide to enter into a cooperative agreement, recognize "tdn quhz amk $each other's property rights, and adopt an enforcement mechanism that puts an end to theft. Let us assume that cooperation will e..
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Answer:
Explanation:
When A and B decide to cooperate, the social surplus of 100 units will be divided equally between both of them. This is so because both the farmers should get the benefit with the result of cooperation.
The following table shows the net consumption of Farmer A and B before the cooperation and after the cooperation.
Farmer Net consumption before cooperation Share of surplus with cooperation Net consumption after cooperation
A 50 + 40 - 10 = 80 50 80 + 50 = 130
B 150 + 10 - 40 = 120 50 120 + 50 = 170
Total 200 100 300
(b).
As we can observe in the table in part (a), the net consumption of A is 130 units, and the net consumption of B is 170 units. After the cooperation, A will be able to produce 90 units, whereas B will be able to produce 270 units of corn. This means that to complete the additional need of 40 units of corn (130 - 90), farmer B will give A 40 units of corn.
As a result, A will have 130 units of corn, and B will have 230 units (270 - 40) of corn.