a. Suppose that the town owns the river and makes the cotton grower pay the cost of pollution. How much cotton is produced and what does the farmer pay the town per ton of cotton produced?
b. Suppose that the cotton grower owns the river and rents it to the town. How much cotton is produced and how is the rent paid by the town to the grower (per ton of cotton produced) influenced by cotton growing?
c. Compare the quantities of cotton produced in parts (a) and (b) and explain the relationship between these quantities.
The figure illustrates the market for cotton. Consider a small town surrounded by a large cotton farm. Suppose that the cotton grower sprays the plants with chemicals to control insects and the chemical waste flows into the river passing through the town. The marginal social cost of producing the cotton is double the marginal private cost.

Transcribed Image Text:

FIGURE 17.1 Problems 1 to 5 150 125 100 75 50 25 100 200 300 400 500 Quantity (tons per month)