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 kayak rental whose visitors use the lake for recreation. The village also has a fish processor that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the sh processor's waste decreases the kayak rental's economic profit. Suppose that the fish processor could use a different production method that involves recycling water. This would reduce the pollution in the lake to levels safe for recreation, and the kayak rental would no longer be affected. If the fish processor uses the recycling method, then the sh processor's economic profit is $1,800 per week, and the kayak rental's economic profit is $2,700 per week. If the sh processor does not use the recycling method, then the fish processor's economic profit is $2,400 per week, and the kayak rental's economic profit is $1,600 per week. These gures are summarized in the following table. Complete the following table by computing the total prot (the sh processor's economic prot and the kayak rental's economic prot combined) with and without recycling. Profit Fish Processor Kaya k Rental Total Action (Dollars) (Dollars) (Dollars) No Recycling 2,400 1,600 4,000 Recycling 1,800 2,700 4,500 Total economic prot is highest when the recycling production method is used 7 . Complete the following table by computing the total prot (the fish processor's economic profit and the kayak rental's economic profit combined) with and without recycling. Profit Fish Processor Kayak Rental Total Action (Dollars) (Dollars) (Dollars) No Recycling 2,400 1,600 4,000 Recycling 1,800 2,700 4,500 Total economic profit is highest when the recycling production method is used V . When the fish processor uses the recycling method, the kayak rental earns $2,700 $1,600 2 $1,100 more per week than it does with no recycling. Therefore, the kayak rental should be willing to pay up to $1,100 per week for the fish processor to recycle water. However, the recycling method decreases the fish processor's economic prot by $2,400 $1,800 2 $600 per week. Therefore, the fish processor should be willing to use the recycling method if it is compensated with at least $600 per week. Suppose the kayak rental has the property rights to the lake. That is, the kayak rental has the right to a clean (unpolluted) lake. In this case, assuming the two firms can bargain at no cost, the fish processor will use V the recycling method and will pay the kayak rental V per week. Now, suppose the fish processor has the property rights to the lake, including the right to pollute it. In this case, assuming the two firms can bargain at no cost, the fish processor will V the recycling method, and the kayak rental will pay the fish processor Y per week. The kayak rental will make the most economic profit when V . True or False: The fish processor will use the recycling method only if the kayak rental has the property rights. True False Suppose the kayak rental has the property rights to the lake. That is, the kayak rental has the right to a clean (unpolluted) lake. In this case, assuming the two firms can bargain at no cost, the fish processor will use Y the recycling method and will pay the kayak rental V per week. Now, suppose the fish processor has the property rights to the lake, including the right to pollute it. In this case, assuming the two firms can bargain at no cost, the fish processor will V the recycling method, and the kayak rental will pay the fish processor V per week. The kaya -nomic profit when V . between $0 and $500 e the recycling method only if the kayak rental has the property rights. between $500 and $600 between $600 and $1,100 Total economic prot is highest when the recycling production method is used V . When the fish processor uses the recycling method, the kayak rental earns $2,700 $1,600 = $1,100 more per week than it does with no recycling. Therefore, the kayak rental should be willing to pay up to $1,100 per week for the fish processor to recycle water. However, the recycling method decreases the fish processor's economic prot by $2,400 $1,800 = $600 per week. Therefore, the fish processor should be willing to use the recycling method if it is compensated with at least $600 per week. Suppose the kayak rental has the property rights to the lake. That is, the kayak rental has the right to a clean (unpolluted) lake. In this case, assuming the two firms can bargain at no cost, the fish processor will use V the recycling method and will pay the kayak rental Y per week. Now, - . the property rights to the lake, including the right to pollute it. In this case, assuming the two firms can bargain at no 1 between $0 and $500 v the recycling method, and the kayak rental will pay the fish proce - Y per week. between $500 and $600 The k between $600 and $1,100 t economic profit when V . True or False: The fish processor will use the recycling method only if the kayak rental has the property rights. True Now, suppose the sh processor has the property rights to the lake, including the right to pollute it. In this case, assuming the two firms can bargain at no cost, the sh processor will V the recycling method, and the kayak rental will pay the fish processor v per week. The kayak rental will make the most economic profit when the fish processor has property rights to pollute the lake True or False: The fish processor will use the recycling met It has property rlghts to a clean lake True False