The town has a campground whose visitors use the lake for recreation. The town also has a research lab that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the research lab's waste decreases the campground's economic profit.Suppose that the research lab 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 campground would no longer be affected. If the research lab uses the recycling method, then the research lab's economic profit is $1,300 per week, and the campground's economic profit is $2,300 per week. If the research lab does not use the recycling method, then the research lab's economic profit is $2,100 per week, and the campground's economic profit is $1,100 per week. These figures are summarized in the following table.NOTE:Choice for first fill-in-blank is (not used or used), for the second its (not use or use), for the third its ($0, or between $0 and $400, or between $400 and $800, or between $800 and $1200), for the fourth its (not use or use), fifth its ($0, or between $0 and $400, or between $400 and $800, or between $800 and $1200), sixth its (it has property rights to clean take or the research lab has property rights to pollute the lake) 7. The effects of property rights on achieving efficiencyConsider a lake found in the town of Winnipeg, and then answer the questions that follow.The town has a campground 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 campground's economicprofit.Suppose that the research lab could use a different production method that involves recydling water. This would reduce the pollution in the lake tolevels safe for recreation, and the campground would no longer be affected. If the research lab uses the recycling method, then the research lab'seconomic profit is $1,300 per week, and the campground's economic profit is $2,300 per week. If the research lab does not use the recycling method,then the research lab's economic profit is $2,100 per week, and the campground's economic profit is $1,100 per week. These figures are summarizedin the following table.Complete the following table by computing the total profit (the research lab's economic profit and the campground's economic profit combined) withand without recycling.ProfitResearch LabCampgroundTotalAction(Dollars)(Dollars)(Dollars)No Recycling2,1001,100Recycling1,3002,300Total economic profit is highest when the recydling production method isWhen the research lab uses the recycling method, the campground earns $2,300 – $1,100 = $1,200 more per week than it does with no recycling.Therefore, the campground should be willing to pay up to $1,200 per week for the research lab to recycle water. However, the recycling methoddecreases the research lab's economic profit by $2,100 – $1,300 = $800 per week. Therefore, the research lab should be willing to use the recyclingmethod if it is compensated with at least $800 per week.Suppose the campground has the property rights to the lake. That is, the campground has the right to a clean (unpolluted) lake. In this case, levels safe for recreation, and the campground would no longer be affected. If the research lab uses the recycling method, then the research lab'seconomic profit is $1,300 per week, and the campground's economic profit is $2,300 per week. If the research lab does not use the recycling method,then the research lab's economic profit is $2,100 per week, and the campground's economic profit is $1,100 per week. These figures are summarizedin the following table.Complete the following table by computing the total profit (the research lab's economic profit and the campground's economic profit combined) withand without recycling.ProfitResearch LabCampgroundTotalAction(Dollars)(Dollars)(Dollars)No Recycling2,1001,100Recycling1,3002,300Total economic profit is highest when the recydling production method isWhen the research lab uses the recycling method, the campground earns $2,300 – $1,100 = $1,200 more per week than it does with no recycling.Therefore, the campground should be willing to pay up to $1,200 per week for the research lab to recycle water. However, the recycling methoddecreases the research lab's economic profit by $2,100 – $1,300 = $800 per week. Therefore, the research lab should be willing to use the recyclingmethod if it is compensated with at least $800 per week.Suppose the campground has the property rights to the lake. That is, the campground has the right to a clean (unpolluted) lake. In this case,assuming the two firms can bargain at no cost, the research lab willthe recycling method and will pay the campgroundper 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 atno cost, the research lab willthe recycling method, and the campground will pay the research labperweek.The campground will make the most economic profit whenTrue or False: The research lab will use the recycling method only if the campground has the property rights.TrueFalse

The property rights refer to the rights to use or obtain the benefits from a good or a service. The…

Answered: The town has a campground whose…

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC