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 hiking lodge 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 hiking lodge's economic profit Suppose that the research lab could use a different production method that involves recycling water. This would reduce the pollution in the river to levels sale for recreation, and the hiking lodge would no longer be affected. If the research lab uses the recycling method, then the research lab's economic profit is $2,200 per week, and the hiking lodge's economic profit is $3,200 per week. If the research lab does not use the recycling method, then the research Lob's economic profit is $3,000 per week, and the hiking lodge's economic profit is $2,000 per week. These pures are summarized in the following table Complete the following table by computing the total profit (the research lao's economie profit and the king lodge economic prope combined with and without recycling. Action Research Lab (Dollars) 3,000 2.200 Profit Hiking Lodge (Dollars) 2.000 3,200 Total (Dollars) No Recycling Pecycling Total economic profit is highest when the recycling production method is When the research ab uses the recyding method, the hiking lodge carns $3,200 - $2.000 = $1,200 more per week than it does with no recycling Therefore, the hiking lodge should be willing to pay up to $1,200 per week for the research ab to recycle water. However, the recycling method decreases the research ia's economic profit by $3.000 - 52,200 800 per week. Therefore, the research lab should be wong to use the recycling method if it is commented with a wasto per week Suppose the hiking lodge has the property rights to the river. That is, the hiking lodge 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 hiking lodge 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 the recycling method, and the hiking lodge will pay the research lab week no cost, the research lab will per The research lat will make the most economic profit when True or False: The river will remain polluted, regardless of who has the property rights True Face