A chemical manufacturer is located upstream from a beer brewery. When the chemical manufacturer produces its product, it drops its waste into the local stream tainting the water used to produce beer. There is a law against putting waste in the stream. If the chemical manufacturer's profits would fall by $650,000 if it didn't dump its waste, and the brewery's profits would increase by $350,000 if the firm didn't dump waste, then the Coase Theorem suggests that the brewer will pay the chemical manufacturer not to dump its waste. the chemical manufacturer will pay the brewer not to complain to the authorities. the brewer will call the police, and the chemical manufacturer will stop dumping waste. the chemical manufacturer will voluntarily stop dumping waste because it's the right thing to do. the chemical manufacturer will freely pollute, and there's nothing the brewer can do about it.

A chemical manufacturer is located upstream from a beer brewery. When the chemical manufacturer produces its product, it drops its waste into the local stream tainting the water used to produce beer. There is a law against putting waste in the stream. If the chemical manufacturer's profits would fall by $650,000 if it didn't dump its waste, and the brewery's profits would increase by $350,000 if the firm didn't dump waste, then the Coase Theorem suggests that the brewer will pay the chemical manufacturer not to dump its waste. the chemical manufacturer will pay the brewer not to complain to the authorities. the brewer will call the police, and the chemical manufacturer will stop dumping waste. the chemical manufacturer will voluntarily stop dumping waste because it's the right thing to do. the chemical manufacturer will freely pollute, and there's nothing the brewer can do about it.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter13: Positive Externalities And Public Goods

Section: Chapter Questions

Problem 23P: HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow...

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wo firms, A and B, each currently dump 50 tonnes of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each tonne of pollution dumped into the river. It costs Firm A $100 for each tonne of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each tonne of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if the firms are NOT allowed to buy and sell pollution permits from each other, and what is the total cost of reducing pollution if the firms ARE allowed to buy and sell permits from each other? A. $4500; $2500 B. $3000; $1500 C. $4500; $3500 D. $4500; $4000
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HighFlyer Airlines wants to build new airplanes with greatly increased cabin space. This will allow HighFlyer Airlines to give passengers more comfort and sell more tickets at a higher price. However, redesigning the cabin means rethinking many other elements of the airplane as well, like engine and luggage placement, and the most efficient shape of the plane for moving through the air. HighFlyer Airlines has developed a list of possible methods to increase cabin space, along with estimates of how these approaches would affect the planes operating costs and ticket sales. Based on these estimates, Table 13.5 shows the value of R, how much should the firm invest in R on top of the private return; that is, an R private return to HighFlyer Airlines would have a 9 social return. How much investment is socially optimal at the 6 interest rate?
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