1. Environmental and Natural Resource Economics 3rd ed. Jonathan M
Environmental and Natural Resource Economics 3rd ed. Jonathan M. Harris and Brian Roach Chapter 4 – Common Property Resources and Public Goods
Copyright © 2013 Jonathan M. Harris

2. Absolutely Diminishing Returns
Constant Returns
Diminishing Returns
Absolutely Diminishing Returns
Total Product (in hundreds of tons of fish)
The total product curve for the fishery exhibits diminishing returns.
Number of Boats (in hundreds)

3. Number of Boats (in hundreds)
Figure 4.2: Total Revenue, Total Costs, and Profits for the Entire Fishery
Total Revenue
Total Costs
Dollars (in millions)
Fishery Profits
Adding total costs allows calculation of total profits (revenues minus costs). The profit maximum is at 650 boats.
Number of Boats (in hundreds)

4. Table 4.1: Total Fish Catch, Revenue, Costs, and Profit
Number of boats
(in hundreds) 1 2 3 4 5 6 7 8 9 10 11 12 13
Total fish catch
(hundred tons) 20 30 40 48 54 58 60
Total revenue
(in million $)
4.8
5.4
5.8
Total costs
0.4
0.8
1.2
1.6
2.4
2.8
3.2
3.6
4.4
5.2
Total profits
0.6
1.8
-0.8
The economic optimum in this example comes between 600 and 700 boats.

5. Table 4.2: Revenue, Costs, and Profits for Individual Fishers
Number of boats
(in hundreds) 1 2 3 4 5 6 7 8 9 10 11 12 13
Revenue per boat
(in thousand $)
9.6
8.2
7.5
6.6
5.8
4.9
3.1
Cost per boat
Profit per boat
5.6
4.2
3.5
2.6
1.8
0.9
-0.9
Profits per boat fall steadily due to diminishing returns, reaching zero at 1200 boats.

6. Table 4.3: Marginal Revenue and Cost Analysis of Fishery
Number of boats
(in hundreds) 1 2 3 4 5 6 7 8 9 10 11 12 13
Total revenue
(in $ million)
4.8
5.4
5.8
Marginal revenue
(in $ 000) –2 –4 –6 –8
Marginal cost
Marginal revenue falls below marginal cost by 700 boats, and falls below zero after 800 boats.

7. Figure 4.3: Marginal Revenue and Cost Analysis of Fishery
Average Revenue
Open-access Equilibrium
Dollars (in thousands)
License Fee
Marginal Revenue • •
Marginal Cost
Efficient Outcome
Combining average revenue, marginal revenue, and marginal cost shows both the economically efficient outcome (at 650 boats) and the inefficient open-access equilibrium (at 1200 boats).
Number of Boats (in hundreds)

8. Figure 4.4: The Economics of Forest Preservation
Doug
Quantity of Forest Preservation (acres) $ 10 2 5 7
MB1
MB2
MB1+2 MC
Sasha
Social Benefits
For a public good, it is necessary to add marginal benefit curves vertically to find total social benefits.