8. The effects of property rights on achieving efficiency Consider a river found

Question

8. 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 resort whose visitors use the river for recreation. The city also has a research lab that dumps industrial waste into the river. This pollutes the river and makes it a less desirable vacation destination. That is, the research lab's waste decreases the resort's economic profa Suppose that the research lab could use a dfferent production method that involves recycling water. This would reduce the pollution in the river to levels safe for recreation, and the resort would no longer be affected. If the research lab uses the recycling method, then the research lab's economic profit is $1,500 per week, and the resort's economlc profit is $1,800 per week. If the research lab does not use the recycling method, then the research lab's economic profit is $2,000 per week, and the resort's economic profit is $1,000 per week. These figures are summarized in the following table. Complete the foWowing table by computing the total profit (the research lab's economic profit and the resort's economic profit combined) with and without recycing. Profit Research Lab Resort (Dollars) (Dollars)(Dollars) 1,000 1,800 No Recycling 2,000 1,500 Total economic profit is highest when the recycling production method is When the research lab uses the recycling method, the resort earns $1,800-$1,000 $800 more per week than it does with no recycling. Therefore, the resort should be willing to pay up to s800 per week for the research lab to recycle water. However, the recycling method decreases the research lab's economic pront by S2,0 $1,500 = $500 per week. Therefore, the research lab should be willing to usethe recycling method if it is compensated with at least $500 per week Suppose the resort has the property rights to the river. That is, the resort has the right to a clean (unpolluted) river. In this case, assuming the two firms can bargain at no cost, the research lab will the recycling method and will pay the resort per week Now, suppose the research lab has the property rights to the river, including the right to pollute it. In this case, assuming the two firms can bargain at no cost, ther research lab will the recycling method, and the resort will pay the research lat per week The research lab will make the most economic profit when True or False: The river will remain polluted, regardless of who has the property rights True False

Explanation / Answer

Here the requirement is considered as Answering the true or false question.

My answer is false(However safe recreation also means safe Ty for environment too). I feel so because no matter who has the property rights the research lab will recycle the water in the river if there is a garaunteed obligation or it will be compensated for its declined profits.

Answer for bits:

Total economic profit is highest recycling method is 300 dollars than not using recycle method

Suppose the resort have property rights to the river.That is,the resort has right to clean river.In this case assuming the two forms can bargain at no cost,the research lab will use recycle method and the resort pay no compensation per week as it has property rights of the river.

Now,suppose the research lab has property rights to the river, including right to pole it. In this case,assuming firms can bargain at no cost,the research lab will use the recycling method,and resort will pay the research lab at least 500 dollars per week for using the river as the research lab have the property rights to the river and it must be compensated for defined profit.

The research lab will make the most economic profil when it get paid 800 dollars from the resort.

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