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on achieving efficiency Consider a lake found in the village of Sturbridge, and then answer the questions that follow. The village has a water park
on achieving efficiency Consider a lake found in the village of Sturbridge, and then answer the questions that follow. The village has a water park whose visitors use the lake for recreation. The village also has a ketchup factory that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the ketchup factory's waste decreases the water park's economic profit. Suppose that the ketchup factory 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 water park would no longer be affected. If the ketchup factory uses the recycling method, then the ketchup factory's economic profit is $2,100 per week, and the water park's economic profit is $1,900 per week. If the ketchup factory does not use the recycling method, then the ketchup factory's economic profit is $2,400 per week, and the water park's economic profit is $1,100 per week. These figures are summarized in the following table. X GX Complete the following table by computing the total profit (the ketchup factory's economic profit and the water park's economic profit combined) with and without recycling. Profit Ketchup Factory Water Park Total Action (Dollars) (Dollars) (Dollars) No Recycling 2,400 1,100 Recycling 2,100 1,900 Total economic profit is highest when the recycling production method is When the ketchup factory uses the recycling method, the water park earns $1,900 - $1, 100 = $800 more per week than it does with no recycling. Therefore, the water park should be willing to pay up to $4:00 per week for the ketchup factory to recycle water. However, the recycling method decreases the ketchup factory's economic profit by $2,400 - $2, 100 = $300 per week. Therefore, the ketchup factory should be willing to use the recycling method if it is compensated with at least $300 per week. Suppose the water park has the property rights to the lake. That is, the water park has the right to a clean (unpolluted) lake. In this case, assuming the recycling method and will pay the water park the two firms can bargain at no cost, the ketchup factory will per week. Now, suppose the ketchup factory has the property rights to the lake, including the right to pollute it. In this case, assuming the two firms can bargain the recycling method, and the water park will pay the ketchup factory at no cost, the ketchup factory will per week. rofit whenWhen the ketchup factory uses the recycling method, the water park earns $1,900 - $1,100 = $800 more per week than it does with no recycling Therefore, the water park should be willing to pay up to $800 per week for the ketchup factory to recycle water. However, the recycling method E decreases the ketchup factory's economic profit by $2,400 - $2,100 = $300 per week. Therefore, the ketchup factory should be willing to use the recycling method if it is compensated with at least $300 per week. Suppose the water park has the property rights to the lake. That is, the water park has the right to a clean (unpolluted) lake. In this case, assuming the two firms can bargain at no cost, the ketchup factory will the recycling method and will pay the water park per week. Now, suppose the ketchup factory 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 ketchup factory will the recycling method, and the water park will pay the ketchup factory per week. The water park will make the most economic profit when True or False: The ketchup factory will use the recycling method, regardless of who has the property rights. O True O False Grade It Now Save & Continue
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