Complete the following table by computing the total profit (the research lab's economic profit and the hiking lodge's economic profit combined) with and without recycling. Profit Research Lab Hiking Lodge Total Action (Dollars) (Dollars) (Dollars) No Recycling 2,100 1,100 Recycling 1,300 2,300 Total economic profit is highest when the recycling production method is When the research lab uses the recycling method, the hiking lodge earns $2,300 – $1,100 = $1,200 more per week than it does with no recycling. Therefore, the hiking lodge should be willing to pay up to $1,200 per week for the research lab to recycle water. However, the recycling method decreases the research lab's economic profit by $2,100 – $1,300 = $800 per week. Therefore, the research lab 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 river. That is, the hiking lodge has the right to a clean (unpolluted) river. In this case, assuming the two firms can bargain at no cost, the research lab will the recycling method and will pay the hiking lodge per week. Now, suppose the research lab has the property rights to the river, including the right to pollute it. In this case, assuming the two firms can bargain at no cost, the research lab will the recycling method, and the hiking lodge will pay the research lab per week. The research lab will make the most economic profit when True or False: The river will remain polluted, regardless of who has the property rights. True False
Complete the following table by computing the total profit (the research lab's economic profit and the hiking lodge's economic profit combined) with and without recycling. Profit Research Lab Hiking Lodge Total Action (Dollars) (Dollars) (Dollars) No Recycling 2,100 1,100 Recycling 1,300 2,300 Total economic profit is highest when the recycling production method is When the research lab uses the recycling method, the hiking lodge earns $2,300 – $1,100 = $1,200 more per week than it does with no recycling. Therefore, the hiking lodge should be willing to pay up to $1,200 per week for the research lab to recycle water. However, the recycling method decreases the research lab's economic profit by $2,100 – $1,300 = $800 per week. Therefore, the research lab 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 river. That is, the hiking lodge has the right to a clean (unpolluted) river. In this case, assuming the two firms can bargain at no cost, the research lab will the recycling method and will pay the hiking lodge per week. Now, suppose the research lab has the property rights to the river, including the right to pollute it. In this case, assuming the two firms can bargain at no cost, the research lab will the recycling method, and the hiking lodge will pay the research lab per week. The research lab will make the most economic profit when True or False: The river will remain polluted, regardless of who has the property rights. True False
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The effects of property rights on achieving efficiency
Consider a river found in the city of Philadelphia, and then answer the questions that follow.
Transcribed Image Text:Complete the following table by computing the total profit (the research lab's economic profit and the hiking lodge's economic profit combined) with
and without recycling.
Profit
Research Lab
Hiking Lodge
Total
Action
(Dollars)
(Dollars)
(Dollars)
No Recycling
2,100
1,100
Recycling
1,300
2,300
Total economic profit is highest when the recycling production method is
When the research lab uses the recycling method, the hiking lodge earns $2,300 – $1,100 = $1,200 more per week than it does with no recycling.
Therefore, the hiking lodge should be willing to pay up to $1,200 per week for the research lab to recycle water. However, the recycling method
decreases the research lab's economic profit by $2,100 – $1,300 = $800 per week. Therefore, the research lab 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 river. That is, the hiking lodge has the right to a clean (unpolluted) river. In this case,
assuming the two firms can bargain at no cost, the research lab will
the recycling method and will pay the hiking lodge
per week.
Now, suppose the research lab has the property rights to the river, including the right to pollute it. In this case, assuming the two firms can bargain at
no cost, the research lab will
the recycling method, and the hiking lodge will pay the research lab
per
week.
The research lab will make the most economic profit when
True or False: The river will remain polluted, regardless of who has the property rights.
True
False
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