Consider a lake found in the town of Center Barnstead, and then answer the questions that follow.The town has a hiking lodge whosevisitors use the lake for recreation. Thetown also has a tannery that dumpsindustrial waste into the lake. Thispollutes the lake and makes it a lessdesirable vacation destination. That is,the tannery's waste decreases the hikinglodge's economic profit.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 wouldno longer be affected. If the tannery uses the recycling method, then the tannery's economic profitis $1,500 per week, and the hiking lodge's economic profit is $1,800 per week. If the tannery doesnot use the recycling method, then the tannery's economic profit is $2,000 per week, and thehiking lodge's economic profit is $1,000 per week. These figures are summarized in the followingtable.Complete the following table by computing the total profit (the tannery's economic profit and thehiking lodge's economic profit combined) with and without recycling.ProfitTannery(Dollars)2,000Hiking Lodge(Dollars)1,000TotalActionNo Recycling(Dollars)Recycling1,5001,800Total economic profit is highest when the recycling production method isWhen the tannery uses the recycling method, the hiking lodge earns $1,800 – S1,000 = $800 more perweek than it does with no recyding. Therefore, the hiking lodge should be willing to pay up to$800 per week for the tannery to recycle water. However, the recycling method decreases thetannery's economic profit by $2,000 – S1,500 = $500 per week. Therefore, the tannery should bewilling to use the recycling method if it is compensated with at least $500 per week. Suppose the hiking lodge has the property rights to the lake. That is, the hiking lodge has the rightto a clean (unpolluted) lake. In this case, assuming the two firms can bargain at no cost, thetannery willthe recycling method and will pay the hiking lodgeper week.Now, suppose the tannery has the property rights to the lake, including the right to pollute it. Inthis case, assuming the two firms can bargain at no cost, the tannery willrecycling method, and the hiking lodge will pay the tanneryweek.theperThe tannery will make the most economic profit whenTrue or False: The lake will remain polluted, regardless of who has the property rights.TrueFalse

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isitors use the lake for recreation. The own also has a tannery that dumps dustrial waste into the lake. This ollutes the lake and makes it a less esirable vacation destination. That is, he tannery's waste decreases the hiking dge's economic profit. ose that the tannery could use a different production method that involves recycling water. would reduce the pollution in the lake to levels safe for recreation, and the hiking lodge wou nger be affected. If the tannery uses the recycling method, then the tannery's economic pro 500 per week, and the hiking lodge's economic profit is $1,800 per week. If the tannery do se the recycling method, then the tannery's economic profit is $2,000 per week, and the g lodge's economic profit is $1,000 per week. These figures are summarized in the following Vete the following table by computing the total profit (the tannery's economic profit and the g lodge's economic profit combined) with and without recycling. Profit Tannery Hiking Lodge (Dollars) 1,000 Total ction Rеcycling cycling (Dollars) 2,000 (Dollars) 1,500 1,800 economic profit is highest when the recycling production method is the tannery uses the recycling method. the hiking Jodge earns $1.800 - S1.000 = $8s00 more p

isitors use the lake for recreation. The own also has a tannery that dumps dustrial waste into the lake. This ollutes the lake and makes it a less esirable vacation destination. That is, he tannery's waste decreases the hiking dge's economic profit. ose that the tannery could use a different production method that involves recycling water. would reduce the pollution in the lake to levels safe for recreation, and the hiking lodge wou nger be affected. If the tannery uses the recycling method, then the tannery's economic pro 500 per week, and the hiking lodge's economic profit is $1,800 per week. If the tannery do se the recycling method, then the tannery's economic profit is $2,000 per week, and the g lodge's economic profit is $1,000 per week. These figures are summarized in the following Vete the following table by computing the total profit (the tannery's economic profit and the g lodge's economic profit combined) with and without recycling. Profit Tannery Hiking Lodge (Dollars) 1,000 Total ction Rеcycling cycling (Dollars) 2,000 (Dollars) 1,500 1,800 economic profit is highest when the recycling production method is the tannery uses the recycling method. the hiking Jodge earns $1.800 - S1.000 = $8s00 more p

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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