**The Village Economy: Impact of Industrial Waste on Recreation**The village has a hiking lodge whose visitors use the lake for recreation. The village also has a fish cannery that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. Thus, the fish cannery's waste decreases the hiking lodge's economic profit.Suppose that the fish cannery 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 fish cannery uses the recycling method, then the fish cannery's economic profit is $2,200 per week, and the hiking lodge's economic profit is $3,200 per week.- If the fish cannery does not use the recycling method, then the fish cannery's economic profit is $3,000 per week, and the hiking lodge's economic profit is $2,000 per week. **Profit Table:**| Action | Fish Cannery (Dollars) | Hiking Lodge (Dollars) | Total (Dollars) ||---------------|------------------------|------------------------|-----------------|| No Recycling | 3,000 | 2,000 | || Recycling | 2,200 | 3,200 | |Complete the following table by computing the total profit (the fish cannery's economic profit and the hiking lodge's economic profit combined) with and without recycling._Total economic profit is highest when the recycling production method is employed._ ### Economic Analysis of Property Rights and Recycling**Table: Economic Profit with Recycling Options**| Action | Fish Cannery (Dollars) | Hiking Lodge (Dollars) | Total (Dollars) ||-----------------|------------------------|------------------------|-----------------|| No Recycling | 3,000 | 2,000 | || Recycling | 2,200 | 3,200 | |- **Insight:** Total economic profit is highest when the recycling production method is utilized.**Analysis:**When the fish cannery uses the recycling method, the hiking lodge earns:\[ 3,200 - 2,000 = 1,200 \text{ more per week} \]than it does with no recycling. Therefore, the hiking lodge should be willing to pay up to $1,200 per week for the fish cannery to recycle water.Conversely, the recycling method decreases the fish cannery’s economic profit by:\[ 3,000 - 2,200 = 800 \text{ per week} \]Thus, the fish cannery should be willing to use the recycling method if it is compensated with at least $800 per week.**Scenario Analysis:**1. *Hiking Lodge with Property Rights:* - If the hiking lodge has the right to a clean lake, and assuming cost-free bargaining, the fish cannery will adopt the recycling method and compensate the hiking lodge per week.2. *Fish Cannery with Property Rights:* - If the fish cannery has the property rights, including the right to pollute, and assuming cost-free bargaining, the fish cannery will still adopt the recycling method. The hiking lodge will compensate the fish cannery per week.**Conclusion:** The fish cannery will achieve the highest economic profit when adopting the recycling production method, assuming appropriate compensation based on property rights arrangements.**Question:**- **True or False: The lake will remain polluted, regardless of who has the property rights.** - [ ] True - [ ] FalseBy understanding these economic dynamics, businesses can make more informed decisions regarding environmental practices and property rights negotiations.

The question is based on Coase theorem, which states that where there are complete competitive…

Fish Cannery Hiking Lodge Total Action (Dollars) (Dollars) (Dollars) No Recycling 3,000 2,000 Recycling 2,200 3,200 Total economic profit is highest when the recycling production method is When the fish cannery uses the recycling method, the hiking lodge earns $3,200 – $2,000 = $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 fish cannery to recycle water. However, the recycling method decreases the fish cannery's economic profit by $3,000 – $2,200 = $800 per week. Therefore, the fish cannery 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 fish cannery will v the recycling method and will pay the hiking lodge A per week. Now, suppose the fish cannery has the property rights to the lake, including the right to pollute it. In this case, assuming the two firms can bargain at no cost, the fish cannery will ▼ the recycling method, and the hiking lodge will pay the fish cannery per week. The fish cannery will make the most economic profit when True or False: The lake will remain polluted, regardless of who has the property rights. True False

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC