Question

Consider a lake found in the town of Center Barnstead, and then answer the questions that follow. The town has a hiking lodge whose visitors use the lake for recreation. The town also has a chemical plant that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the chemical plant's waste decreases the hiking lodge's economic profit. Suppose that the chemical plant 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 hiking lodge would no longer be affected. If the chemical plant uses the recycling method, then the chemical plant's economic profit is $1,300 per week, and the hiking lodge's economic profit is $2,300 per week. If the chemical plant does not use the recycling method, then the chemical plant's economic profit is $2,100 per week, and the hiking lodge's economic profit is $1,100 per week. These figures are summarized in the following table.

Answer 1

No recycling : total = 3,200

Recycling : total = 3,600

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

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

Now suppose the chemical plant........ Use...... $ 800 and $ 1200 per week

The hiking lodge will make..... It has the property rights to clean lake.

The chemical plant will use....... False