6. The eftects ot property rights on achieving efficiency Consider a lake found in the town of Center Bamstead, and then answer the questions that follow. The town has a boat tour whose visitors use the lake for recreation. The town also has a chemical lab that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the chemical lab's waste decreases the boat tour's economic profit. Suppose that the chemical lab could use a different production method that imvolves recyding water. This would reduce the pollition in the lake to levels safe for recreation, and the boat tour would no longer be affected, If the chemical lab uses the recycing method, then the chemical iabs economic profit is 31,100 per week, and the boat tour's economic profit is 32,600 ner week. If the chemical lab does not use the recyclino methed. then the chemical lab's economic profic is $1,800 per week, and the boat tour's economic profit is $1,500 per week. These figures are summarized in the following table. Complete the following table by computing the total profit (the chemical lab's economic profit and the boat tour's economic profit combined) with and without recycting. Total economic profit is highest when the recyding production method is When the chemical lab uses the recycling method, the boat tour eams $2,600$1,500$1,100 more per weck than it does with no recyding. Therefore, the boat tour should be willing to pay up to $1,100 per week for the chemical lab to recycle water. However, the recycling method decreases the chemical lab's economic profit by $1,800$1,100=$700 per week. Therefore, the chemicat lab should be willing to use the recyding methed if it is compensated with at least $700 per week. Suppose the boat tour has the property rights to the lake. That is, the boat tour has the riglt to a clean (unpolluted) lake. in this case, assumino the two firms can baroain at no cost, the chemical lab will the recydino method and will pay the boat tour Now, suppose the cherrical lab has the property rights to the lake, including the right to pollute it, in this case. assumino the two fims can bargalinat no cost, the chemical lab will the recycing method, and the bost tour will pay the cherical lab week. The boat tour will make the most economic profit when True or False: The chemical lab will use the recycling method only if the boat tour has the property rights. True False