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2. 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 resort whose visitors use the river for recreation. The city also has a tannery that dumps industrial waste into the river. This pollutes the river and makes it a less desirable vacation destination. That is, the tannery's waste decreases the report's profit. Suppose that the tannery could use a different production method that involves recycling water. This would reduce the pollution in the river to levels safe for recreation, and the resort would no longer be affected. If the tannery uses the recycling method, then the cannery's profit is $1,400 per week, and the resort's profit is $2,700 per week. If the tannery does not use the recycling method, then the tannery's profit is $2.200 per week, and the resort's profit is $1,500 per week. These figures are summarized in the following table. Complete the following cable by computing the total profit (the cannery's profit and the resort's profit combined) with and without recycling. Profit Tannery Resort Total Action (Dollars) (Dollars) (Dollars) No Recycling 2.200 1,500 Recycling 1,400 2.700 Total profit is highest when the recycling production method is When the tannery uses the recycling method, the resort earns $2,700 - $1,500 - $1,200 more per week than it does with no recycling. Therefore. the resort should be willing to pay up to $1.200 per week for the tannery to recycle water. However the recycling method decreases the tannery's profit by $2,200 - $1,400 - $800 per week. Therefore, the tannery should be willing to use the recycling method if it is compensated with at least $800 per wock. Suppose the resort has the property rights to the river. That is, the resort has the right to a clean (unpolluted) river. In this case, assuming the two firms can bargain at no cost, the tannery will the recycling method and will pay the resort per week. Now, suppose the tannery has the property rights to the river, including the right to pollute it. In this case, assuming the two firms can bargain at no cost, the tannery will the recycling method, and the resort will pay the tannery per week. The tannery will make the most profit when True or False: The cannery will use the recycling method only if the resort has the property rights.True or False: The tannery will use the recycling method only if the resort has the property rights. O True O Falseion method is not used resort earns 500 = $1,200 more per per week used D recycle waten However, reto e, the DE illi to use thes the property rights to the river. That is, the resort has the right to a o cost, the tannery will the recycling method and will pa not use nery has the property ri e river including the right to pollute i the recycl USC d, and the resort will pay the tannerys the right to a clean (unpolluted) river. In this case, assuming the two hod and will pay the resort 1 /per week. ight to pollute it. In this ca: $0 In bargain at no pay the tannery between $0 and $400 between $400 and $800 between $800 and $1,200 the property rights.has the it will the rec not Use profit whe USE e the recto pollute it. In this case, assuming the two firms can bargain at no the tannery per week. between $0 and $400 property rit between $400 and $800 between $800 and $1,200e the most profit when ninery will use the recyc it has property rights to pollute the river ights. the resort has property rights to a clean river