Question

Consider a lake found in the town of Center Barnstead, and then answer the questions that follow The town has a campground whose visitors use the lake for recreation. The town also has a research lab that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the research lab's waste decreases the campground's economic profit. aD Suppose that the research lab could use a different production method that involves recycling water. This would reduce the pollution in the lake to levels safe for recreation, and the campground would no longer be affected. If the research lab uses the recycling method, then the research lab's economic profit is $2,200 per week, and the campground's economic profit is $3,200 per week. If the research lab does not use the recycling method then the research lab's economic profit is $3,000 per week, and the campground's economic profit is $2,000 per week. These figures are summarized in the following table Complete the following table by computing the total profit (the research lab's economic profit and the campground's economic profit combined) with and without recycling Research Lab (Dollars) 3,000 2,200 Profit Campground (Dollars) 2,000 3,200 Total Action No Recycling Recycling (Dollars)

Answer 1

Profit

Action	Research Lab	Campground	Total
No recycling	$ 3,000	$ 2,000	$ 5,000
Recycling	$ 2,200	$ 3,200	$ 5,400

Total economic profit is highest when recycling production method is used / implemented.

When campground has the property rights to the lake

In this case, assuming the two firms bargain at no cost, the research lab will use the recycling method and will pay the campground $ 0 per week.

When research lab has the property rights including the right to pollute it.

In this case, assuming the two firms bargain at no cost, the research lab will use recycling method, and the campground will pay the research lab pay between $ 800 and $ 1,200 per week.

The research lab will make most economic profit when it has the property right to pollute the lake.

As we can see In both the above cases the Research lab used the recycling method. As per Coase theorem regardless of property rights socially optimal outcome must be reached.

False.

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