Homework (Ch 10)8. The effects of property rights on achieving efficiencyConsider a lake found in the town of Center Barnstead, and then answer the questions that follow.The town has a hiking lodge whose visitors use the lake forrecreation. The town also has a research lab that dumpsindustrial waste into the lake. This pollutes the lake andmakes it a less desirable vacation destination. That is, theresearch lab's waste decreases the hiking lodge's economicprofit.Suppose that the research lab could use a different production method that involves recycling water. This would reduce the pollution in the lake tolevels safe for recreation, and the hiking lodge would no longer be affected. If the research lab uses the recycling method, then the research lab'seconomic profit is $1,500 per week, and the hiking lodge's economic profit is $1,800 per week. If the research lab does not use the recycling method,then the research lab's economic profit is $2,000 per week, and the hiking lodge's economic profit is $1,000 per week. These figures are summarizedin the following table. Now, suppose the research lab has the property rights to the lake, including the right to pollute it. In this case, assuming the two firms can bargain atno cost, the research lab willv the recycling method, and the hiking lodge will pay the research labperweek.The hiking lodge will make the most economic profit whenTrue or False: The lake will remain polluted, regardless of who has the property rights.O TrueO False

Given: Economic profit from recycling: Research lab=$ 1500 per week Hiking lodge=$ 1800 per week

Now, suppose the research lab 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 research lab will v the recycling method, and the hiking lodge will pay the research lab per week. The hiking lodge will make the most economic profit when True or False: The lake will remain polluted, regardless of who has the property rights. O True O False

Now, suppose the research lab 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 research lab will v the recycling method, and the hiking lodge will pay the research lab per week. The hiking lodge will make the most economic profit when True or False: The lake will remain polluted, regardless of who has the property rights. O True O False

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 3PA

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