Question

2. Consider Gordon's model of common property resources. Consider the Gordon Model for a Common Property Resource depicted in the diagram below Average Revenue Product MC Effort AC Effort 20 Effort (Number of vessel-Days) 10 40 Marginal Revenue Product What is the a. Level of effort that will lead to extinction of the resource i.

Answer 1

Answer 2:

a. i. The level of the effort that will lead to extinction of the resource is the level where Average Revenue Product from the resource is equal to marginal cost of the effort

ii. The level of effort that will produce maximum sustainable yield is the level of effort where where marginal revenue product from the effort is equal to marginal cost of the effort.

iii. The optimal level of the resource that will maximize the value of the resource = 10 vessel days.

iv. Open access level of effort = 40 vessel days.

b. An environmentally conscious producer will overuse a common property resource because the person will look at maximizing his/her profits which will be maximized at the point where average revenue product of the effort is equal to the marginal cost of the effort and thus the resource will be over used.