A village has six residents, each of whom has accumulated savings of $100. Each villager can use this money either to buy a government bond that pays 18 percent interest per year or to buy a year-old llama, send it onto the commons to graze, and sell it after 1 year. The price the villager gets for the 2-year-old llama depends on the quality of the fleece it grows while grazing on the commons. That in turn depends on the animal’s access to grazing, which depends on the number of llamas sent to the commons, as shown in the following table: Number of llamasPrice per 2-year-oldllama ($)on the commons11251193116411351116109The villagers make their investment decisions one after another, and their decisions are public.a. If each villager decides individually how to invest, how many llamas will be sent onto the commons, and what will be the resulting village income from llama or bonds?Number of llamas:Instructions: Enter your response as a whole number.Village income from llama or bonds: $b. What is the socially optimal number of llamas for this village?Socially optimal number of llamas:What would village income from llama or bonds be if the socially optimal number of llamas were sent onto the commons?Instructions: Enter your response as a whole number.Village income from llama or bonds: $c. The village committee votes to auction the right to graze llamas on the commons to the highest bidder. Assuming villagers can both borrow and lend at 18 percent annual interest, how much will the right sell for at auction?Instructions: Enter your response rounded to two decimal places.2$What will be the resulting village income from llama or bonds?Instructions: Enter your response as a whole number.Village income from llama or bonds: $

a. Income for llama can be calculated as follows. Total income from llama can be calculated as…

Answered: A village has six residents, each of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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_{A village has six residents, each of whom has accumulated savings of $100. Each villager can use this money either to buy a government bond that pays 18 percent interest per year or to buy a year-old llama, send it onto the commons to graze, and sell it after 1 year. The price the villager gets for the 2-year-old llama depends on the quality of the fleece it grows while grazing on the commons. That in turn depends on the animal’s access to grazing, which depends on the number of llamas sent to the commons, as shown in the following table:}

Number of llamas
Price per 2-year-old
llama ($)
on the commons
1
125
119
3
116
4
113
5
111
6
109
The villagers make their investment decisions one after another, and their decisions are public.
a. If each villager decides individually how to invest, how many llamas will be sent onto the commons, and what will be the resulting village income from llama or bonds?
Number of llamas:
Instructions: Enter your response as a whole number.
Village income from llama or bonds: $
b. What is the socially optimal number of llamas for this village?
Socially optimal number of llamas:
What would village income from llama or bonds be if the socially optimal number of llamas were sent onto the commons?
Instructions: Enter your response as a whole number.
Village income from llama or bonds: $
c. The village committee votes to auction the right to graze llamas on the commons to the highest bidder. Assuming villagers can both borrow and lend at 18 percent annual interest, how much will the right sell for at auction?
Instructions: Enter your response rounded to two decimal places.
2$
What will be the resulting village income from llama or bonds?
Instructions: Enter your response as a whole number.
Village income from llama or bonds: $

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