Homework (Ch 10) Suppose that the fish cannery could use a different production
ID: 1109672 • Letter: H
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Homework (Ch 10) Suppose that the fish cannery 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 fish cannery uses the recycling method, then the fish cannery's economic profit is $2,200 per week, and the hiking lodge's economic profit is $3,200 per week. If the fish cannery does not use the recycling method, then the fish cannery's economic profit is $3,000 per week, and the hiking lodge's economic profit is $2,000 per week. These figures are summarized in the following table Complete the following table by computing the total profit (the fish cannery's economic profit and the hiking lodge's economic profit combined) with and without recycling Profit Fish Cannery Hiking Lodge Total (Dollars) (Dollars) 2,000 3,200 (Dollars) Action No Recycling Recycling 3,000 2,200 5,000 5,400 Total economic profit is highest when the recycling production method is used When the fish cannery uses the recycling method, the hiking lodge earns $3.200-$2.000= $1.200 more per week than it does with no recycling. Therefore, the hiking lodge should be willing to pay up to $1,200 per week for the fish cannery to recycle water. However, the recycling method decreases the fish cannery's economic profit by $3.000-$2.200=$800 per week. Therefore, the fish cannery should be willing to use the recycling method if it is compensated with at least $800 per week Suppose the hiking lodge has the property rights to the lake. That is, the hiking lodge has the right to a clean (unpolluted) lake. In this case, assuming the two firms can bargain at no cost, the fish cannery will not use the recycling method and will pay the hiking lodge between $800 and $1,200 per week Now, suppose the fish cannery 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 fish cannery will use the recycling method, and the hiking lodge will pay the fish cannery between $400 and $800 per week The fish cannery will make the most economic profit when the hiking lodge has property rights to a clean lake True or False: The fish cannery will use the recycling meth it has property rights to pollute the lake True O FalseExplanation / Answer
Total profit is maximum when recycling is used.
If hiking lodge has property rights fish cannery will use the recycling method and will earn $2,200 only when it has to pay nothing or $0 to the hiking lodge. If it has to pay an amount more than $800 then it would be a loss which is when it does not use recycling and pays $1200 to the hiking lodge.
If the fish cannery has the property rights then the fish cannery will use the recycling method and hiking lodge will pay any amount less than $1200. So the correct option is between $800 and $1,200
Fish fish cannery has more economic profit when it has the property rights.
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