Consider a lake found in the village of Sturbridge, and then answer the question

Question

Consider a lake found in the village of Sturbridge, and then answer the questions that follow. The village has a hiking lodge whose visitors use the lake for recreation. The village 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 hiking lodge'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 hiking lodge would no longer be affected. If the research lab uses the recycling method, then the research lab's economic profit is $1,800 per week, and the hiking lodge's economic profit is $2,800 per week. If the research lab does not use the recycling method, then the research lab's economic profit is $2,300 per week, and the hiking lodge's economic profit is $2,000 per week. These figures are summarized in the following table. Complete the followving table by computing the total profit (the research lab's economic profit and the hiking lodge's economic profit combined) with and without recycling. Profit Hiking Lodge Research Lab Total Action(Dollars)(llars) (Dollars) No Recycling 2,300 2,000 Recycling 1,800 2,800 Total economic profit is highest when the recycling production method is When the research lab uses the recycling method, the hiking lodge earns $2,800-$2,000- $800 more per week than it does with no recycling Therefore, the hiking lodge should be willing to pay up to $800 per week for the research lab to recycle water. However, the recycling method decreases the research lab's economic profit by $2.300-$1,800 $500 per week. Therefore, the research lab should be willing to use the re

Explanation / Answer

1) Total profit by No recycling = 2300 + 2000 = 4300

2) Total profit by recycling = 1800 + 2800 = 4600

3) is used

4) Not use recycling method

5) Pay $ 500

6) Not use recycling

7) $ 800

8) Property right are assigned to hiking lodge

9) False

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