Econ help D Cengage Brain Login or F x Apl Stud Question x C Econ Help IChegg.co

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Question

Econ help

D Cengage Brain Login or F x Apl Stud Question x C Econ Help IChegg.com C Courses aplia.co action takeQuiz&quiz; probGuid Q4PLCOA80101000000307a47e00b0000&ctx; nbissess-0038&ck; 2 1467076073013 0AAQ E 8. The effects of property rights on achieving efficiency Consider a lake found in the village of Sturbridge, and then answer the questions that follow The village has a resort whose visitors use the lake for recreation. The village also has a chemical plant that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the chemical plant's waste decreases the resort's economic profit. Suppose that the chemical plant could use a different production method that involves recycling water. This would reduce the pollution in the lake to be affected. If the chemical plant uses the recycling method, then the chemical plant's levels safe for recreation, and the reso would no longer economic profit is $2,000 per week, and the resort's economic profit is $2,900 per week. If the chemical plant does not use the recycling method then the chemical plant's economic profit is $2,700 per w eek, and the resort's economic profit is $1,900 per week. These figures are summarized in the following table Suggestions Session Complete the following table by computing the total profit (the chemical plant's economic profit and the resort's economic profit com with and 59:00 Timeout I'm Cortana. Ask me anything

Explanation / Answer

Following is the complete table –

Profit

Action

Chemical plant

Resort

Total

No recycling

2,700

1,900

4,600

Recycling

2,000

2,900

4,900

Total economic profit is highest when the recycling production method is used.

It has been provided that if chemical plant use the recycling method and make the lake clean, profit of resort increases by $1,000 per week while profit of chemical plant decreases by $700 per week.

If resort has the property right to lake then it must get clean lake or be compensated for loss of profit due to polluted lake.

Clean lake can increase the profit of resort by $1,000 per week. Thus, chemical plant either has to use recycling method or can compensate the resort with $1,000 per week.

If chemical plant uses recycling method its profit will be $2,000 per week. If it does not use recycling method, its profit would be $2,700 per week. However, after compensating resort (in case of no recycling) effective profit of chemical plant would be ($2,700 - $1,000) $1,700 per week.

Since, when resort has property right to lake, effective profit of chemical plant is higher in case it uses recycling method and when it uses recycling method, profit of resort automatically goes up and thus it do not have to pay anything to resort.

So, if resort has property rights to lake then chemical plant will USE recycling method and will pay the resort $0 per week.

If chemical plant has property right to lake then it can pollute the lake and can earn $2,700 per week. Use of recycling method will decrease its profit by $700 per week. It can be persuaded to use recycling method, if it is compensated with $700 per week.

When chemical plant uses recycling method, profit of resort increase by $1,000 per week.

Since, this amount is higher than the amount required to compensate chemical plant to use recycling method, resort will pay $700 per week to chemical plant to induce it to use recycling method because even after this payment, its profit increases by ($1,000 - $700) $300 per week.

So, if chemical plant has property right then chemical plant will USE recycling method and the resort will pay the chemical plant $700 per week.

The chemical plant will make the most economic profit when it has the property right to the lake.

As above stated discussion shows, chemical plant is using recycling method irrespective of the assignment of property rights.

Thus, the given statement is true.