please finish the question . thanks 5. The effects of property rights on achievi
ID: 1118755 • Letter: P
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please finish the question . thanks
5. The effects of property rights on achieving efficiency Consider a river found in the city of Philadelphia, and then answer the questions that follow. The city has a hiking lodge whose visitors use the river for recreation. The city also has a fish cannery that dumps industrial waste into the river. This pollutes the river and makes it a less desirable vacation destination. That is, the fish cannery's waste decroases the hiking lodge's economic profit. an Suppose that the fish cannery could use a different production method that involves recycling water. This would reduce tha pollution in the river to levels safe for recreation, and the hiking ledge would no longer be affected. It the fith cannery uses the recycling method, than the fish cannery's ecanomic profit is $2,200 per week, and the hiking lodge's economic profit is s3,200 per week. If the fish cannery does nat use the recycling methad, then the in the following table. fish cannery's economic profit is s3,000 per week, and the hiking lodge's economic profit is $2.000 per week. These figures are summarizedExplanation / Answer
Total economic profit is highest when the recycling production method is used. i.e, $5,200.
When the fish cannery uses the recycling method,the hiking lodge earns $3,200 -$2000 = $1,200 more per week than it does with no recycling. Therefore, the hiking lodge should be willing to pay up to $1200 per week for the fish cannery to recycle water. However, the recycling method decreases the fish cannery's economic profitby $3,000-$2200 = $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 river . That is, the hiking lodge has the right to clean river. In this case ,assuming the two fir,s can bargain at no cost, the fish cannery will use the recycling method and will pay the hiking lodge $0 per week. Because the recycling method decreases the fish cannery's profit by $800 per week . Therefore, the fish cannery is willing to pay the hiking lodge up to $800 per week to be allowed to not to use the recycling method. But when the fish cannery doesn't use the recycling method ,the hiking lodge earns $1,200 less each week . Therefoere, the hiking lodge will require at least $1200 per week to allow the fish cannery to pollut the lake by not recycling.
Even if the fish cannery offered to pay it $800 per week, th hiking lodge would not consider allowing the pollution,since a clean lake is worth $1200 more per week to the hiking lodge.Because the hiking lodge owns the right to a clean lake,the fish cannery's only choice is to use the recycling method .Because it uses the recycling method ,the water remains clean , so the fish cannery doesn't need to pay the hiking lodge any money.
Now suppose the fish cannery has the property rights to the river ,including the right to pollute it . In this case, assuming the two firms bargain at no-cost ,the fish cannery will use the recycling method and the hiking lodge will pay the fish cannery between $800 and $1200 per week.
The fish cannery will make the most economic profit when not uses the recycling method.
The fish cannery will use the recycling method ,regardless of who has the property rights. [TRUE] . Explanation is given above in both cases.
Profit Fish cannery Hiking lodge Total No recycling 3,000 2,000 5,000 Recycling 2,200 3,200 5,200Related Questions
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