8. The effects of property rights on achieving efficiency Consider a lake found in the village of Sturbridge, and then answer the questions that follow. The village has a hiking lodge whose visitors use the lake for recreation. The village also has a tannery that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the tannery's waste decreases the hiking lodge's economic profit. Aa Suppose that the tannery 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 tannery uses the recycling method, then the tannery's economic profit is $1,500 per week, and the hiking lodge's economic profit is $2,800 per week. If the tannery does not use the recycling method, then the tannery's economic profit is $2,300 per week, and the hiking lodge's economic profit is $1,600 per week. These figures are summarized in the following table. Complete the tollowing table by computing the total protit (the tannery's economic protit and the hiking lodge's economic protit combined) with and without recycling. Profit Total Hiking Lodge Tannery (Dollars) (Dollars) (Dollars) Action No Recycling 2,300 1,600 Recycling 1,500 2,800 Total economic profit is highest when the recycling production method is When the tannery uses the recycling method, the hiking lodge earns $2,800- $1,600=$1,200 more per week than does with no recycling. Therefore, the hiking lodge should be willing to pay up to $1,200 per week for the tannery to recycle water. However, the recycling method decreases the tannery's economic profit by $2,300-$1,500= $800 per week. Therefore, the tannery should be willing to use the recycling method if it is compensated with at least $800 per week. Suppose the hiking lodge has the property rights to the lake. That is, the hiking lodge has the right to a clean (unpolluted) lake. In this case, assuming the two firms can bargain at no cost, the tannery will the recycling method and willl pay the hiking lodge per week Now, suppose the tannery has the property rights to the lake, including the right to pollute it. In this case, assuming the two firms can bargain at no the recycling method, and the hiking lodge will pay the tannery cost, the tannery will per week The tannery will make the most economic profit when True or False: The tannery will use the recycling method, regardless of who has the property rights.