Consider a lake found in the village of Sturbridge, and then answer the questions that follow.

The village has a boat tour whose visitors use the lake for

recreation. The village also has a research facility that dump

industrial waste into the lake. This pollutes the lake and

makes it a less desirable vacation destination. That is$,$ the

research facility's waste decreases the boat tour's economic

profit.

Suppose that the research facility 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 boat tour would no longer be affected. If the research facility uses the recycling method, then the research facility's

economic profit is $$1,100$ per week, and the boat tour's economic profit is $$2,600$ per week. If the research facility does not use the recycling method,

then the research facility's economic profit 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 research facility's economic profit and the boat tour's economic profit combined$)$ with

and without recycling.

Total economic profit is highest when the recycling production method is

When the research facility uses the recycling method, the boat tour earns $$2,600-$$$1,500=$$$1,100$ more per week than it does with no recycling.

Therefore, the boat tour should be willing to pay up to $$1,100$ per week for the research facility to recycle water. However, the recycling method

decreases the research facility's economic profit by $$1,800-$$$1,100=$$$700$ per week. Therefore, the research facility should be willing to use the

recycling method 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 right to a clean $($unpolluted$)$ lake. In this case, assuming the

two firms can bargain at no cost$,$ the research facility will

the recycling method and will pay the boat

tour

per week.

Now, suppose the research facility 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 research facility will

the recycling method, and the boat tour will pay the research

facilit$)$

per week.

between $$0$ and $$400$

The research facility will make the most economic profit when

$.$

the boat tour has property rights to a clean lake

it has property rights to pollute the lake

True or False: The research facility will use the recycling method, regardless of who has the property rights.

True

False