1. Suppose a farmer along Lake Lansing uses insecticides. The insecticide runs off into LakeLansing causing it to become more polluted and increasing the growth of algae along theshoreline. Suppose the farmer's profits increase by $200 for each additional ton of fertilizerused until the farmer reaches 6 tons and then the profits do not increase at all if increasefertilizer use beyond 6 tons. Suppose the total cost (to people who live along the shoreline,use the beaches and fish) of different levels of fertilizer is given in the table below. (Notehow difficult it would be to accurately measure this cost.)Unit of fertilizer0123456Total Cost$0$50$120$240$400$590$800a) Assuming transaction costs are zero, what would happen if the farmer is given property rights tothe lake? (Discuss how much fertilizer would be used and the transfer of money.)b) Assuming transaction costs are zero, what would happen if the people who swim and fish inCayugu Lake are given property rights to the lake? (Discuss how much fertilizer would be used andthe transfer of money.)c) What are the advantages of assigning property rights compared to taxation and regulation?d) Why might assigning property rights not achieve the efficient/optimal outcome?

Given , Profits of Farmer increase by 200 for each ton , So total profit for 6 unit of fertilizers…

Suppose a farmer along Lake Lansing uses insecticides. The insecticide runs off into Lake Lansing causing it to become more polluted and increasing the growth of algae along the shoreline. Suppose the farmer's profits increase by $200 for each additional ton of fertilizer used until the farmer reaches 6 tons and then the profits do not increase at all if increase fertilizer use beyond 6 tons. Suppose the total cost (to people who live along the shoreline, use the beaches and fish) of different levels of fertilizer is given in the table below. (Note how difficult it would be to accurately measure this cost.) Unit of fertilizer 0 1 2 3 4 Total Cost $0 $50 $120 $240 $400

Suppose a farmer along Lake Lansing uses insecticides. The insecticide runs off into Lake Lansing causing it to become more polluted and increasing the growth of algae along the shoreline. Suppose the farmer's profits increase by $200 for each additional ton of fertilizer used until the farmer reaches 6 tons and then the profits do not increase at all if increase fertilizer use beyond 6 tons. Suppose the total cost (to people who live along the shoreline, use the beaches and fish) of different levels of fertilizer is given in the table below. (Note how difficult it would be to accurately measure this cost.) Unit of fertilizer 0 1 2 3 4 Total Cost $0 $50 $120 $240 $400

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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