Suppose that the tannery could use a different production method that involves r

Question

Suppose that the tannery 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 tannery uses the recycling method, then the tannery's economic profit is $1,800 per week, and the hiking lodge's economic profit is $2,800 per week. If the tannery does not use the recycling method, then the tannery'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 following table by computing the total profit (the tannery's economic profit and the hiking lodge's economic profit combined) with and without recycling.

*for the blank the options are (used/not used)

1. 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 tannery will (Not use/Use) the recycling method and will pay the hiking lodge ( $0 / between $0 - $300 / between $300 - $500 / between $500 - $800 ) per week.

2. Now, suppose the tannery 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 tannery will ( use / not use)  the recycling method, and the hiking lodge will pay the tannery ($0 / between $0 - $300 / between $300 - $500 / between $500 - $800) per week

3.  The tannery will make the most economic profit when ( it has property rights to populate the lake / the hiking lodge has proerty rights to clean the lake)

4. True or False: The tannery will use the recycling method only if the hiking lodge has the property rights

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 tannery that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the tannery's waste decreases the hiking lodge's economic profit. aD

Explanation / Answer

1) Total Profit from No Recycling = 2300 + 2000 = 4300

2) Total profit from Recycling = 1800 + 2800 = 4600

3) used

4) not use the Recycling method ; pay $ 800 per week

5) use the Recycling method; pay $ 500 per week

6) Property right is in favor of Hiking lodge or hiking lodge has the property right

7) False

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