Question

8. The effects of property rights on achieving efficiency Consider a river found in the city of Philadelphia, and then answer the questions that follow. The city has a hiking lodge whose visitors use the river for recreation. The city also has a fish cannery that dumps industrial waste into the river. This pollutes the river and makes it a less desirable vacation destination. That is, the fish cannery's waste decreases the hiking lodge's economic profit. Suppose that the fish cannery could use a different production method that involves recycling water. This would reduce the pollution in the river to levels safe for recreation, and the hiking lodge would no longer be affected. If the fish cannery uses the recycling method, then the fish cannery's economic profit is $2,200 per week, and the hiking lodge's economic profit is $3,200 per week. If the fish cannery does not use the recycling method, then the fish cannery's economic profit is $3,000 per week, and the hiking lodge'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 fish cannery's economic profit and the hiking lodge's economic profit combined) with and without recycling. Tyne here to search orie @ 93

Answer 1

No recycling : total = 5,000

Recycling : total = 5,400

Total economic profit is........... Used

Suppose the hiking lodge........... Use....... $ 0 per week

Now suppose the fish cannery.......... Use........ Between $ 800 and $ 1200 per week

The fish cannery will....... It has the right to pollute the lake

The river will remain polluted........ False