Question

Fill in the table below and use the information in the rest of the questions in the problem Set. Suppose a paper mill is located by a river. Its production process generates pollution that can be dumped into the river at no cost, generating profits of 400. Or it could install filters to control its emissions at a cost of 300, leaving a net profit of 100. A fishery is about to locate by the same river, and it needs to decide whether to locate upstream or downstream from the paper mill. If it locates upstream, it earns profits of 300 when the paper mill does not abate pollution and 500 when the paper mill does abate pollution. If it locates downstream, it earns profits of 200 when the paper mill does not abate pollution and 700 when the paper mill does abate pollution. Complete the table showing the net social benefit for the four possible outcomes. Net Social Benefits Fishery Upstream Fishery Downstream Mill Pollution 700 600 Mill No Pollution 600 800

Answer 1

suppose the property right is assiged to the "paper mill", =>"paper mile" have the right to polute into the river. So, if the "fisher man" is about locate upstream, => the fisher man will pay maximum "500-300=200" to induce the paper mill to stop pollution.

Now, if the "fisher man" is about locate down stream, => the fiser manwill pay maximum "700-200=500" to induce the paper mill to stop pollution.

Since ther is no positive exterbality the soical benefits and th orivate advantages are equivalent.

Fishery Upstream Fishery Downstream

Mill Pollution 300 200

400 400

700 600

Mill No Pollution 500 700

100 100

600 800

The productive result happens when the net social advantages are most elevated. i.e., the paper nill ought to subside its contamination and the fishery ought to find Downstream.