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8 . The effects of property rights on achieving efficiency Consider a lake found in the village of Leduc, and then answer the questions that follow. The village has a resort whose visitors use the lake for recreation. The village also has a tannery that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the tannery's waste decreases the resort's economic profit. Suppose that the tannery 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 resort would no longer be affected. If the tannery uses the recycling method, then the tannery's economic profit is $2,200 per week, and the resort's economic profit is $3,200 per week. If the tannery does not use the recycling method, then the tannery's economic profit is $3,000 per week, and the resort's economic profit is $2,000 per week. These figures are summarized in the following table.Complete the following table by computing the total profit (the tannery's economic profit and the resort's economic profit combined) with and without recycling. Profit Tannery Resort Total Action (Dollars) (Dollars) (Dollars) No Recycling 3,000 2,000 Recycling 2,200 3,200 Total economic profit is highest when the recycling production method is When the tannery uses the recycling method, the resort earns $3,200 - $2,000 = $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 economic profit by $3,000 - $2,200 = $800 per week. Therefore, the tannery should be willing to use the recycling method if it is compensated with at least $800 per week. Suppose the resort has the property rights to the lake. That is, the resort has the right to a clean (unpolluted) lake. 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 lake, 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 economic profit whenTrue or False: The tannery will use the recycling method, regardless of who has the property rights. 0 True 0 False tion method is not used arns $3,200 - 1,200 more per week than it for the tannery used water. However, the recycling erefore, the tanmery should be willing to use the recyclin at is, the resort has the right to a clean (unpolluted ) lakerty rights to the lake. That is, the resort has t e tannery will the recycling metho not use he property ri e lake, including the righ the recycl use and the resort will pa"I (unpolluted) lake. In this case, assuming the two 3 resort V per week. $0 this ca- n bargain at no between $0 and $400 331(- between $400 and $800 between $800 and $1,200 'ItS. ose the tannery has the property rights to the la annery will the recycling method, a y will make not use economic profit when use se: The tannery wir dse the recycling method, r Trueollute it. In this case, assuming the two firms can bargain at no cannery per week. $0 between $0 and $400 operty between $400 and $800 between $800 and $1,200it when g meth it has property rights to pollute the lake the resort has property rights to a clean lake