Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please help me with this economics problem. Thank you! The apparel producer Make-A-Shirt, which specializes in making bright pink shirts, is located on the river

Please help me with this economics problem. Thank you!

image text in transcribed
The apparel producer "Make-A-Shirt", which specializes in making bright pink shirts, is located on the river 1 mile downstream from the new "Make-A-Purse" manufacturing plant that produces leather bags. As part of the manufacturing process, Make-A-Purse uses water from the river mixed with a chemical to treat the leather prior to making its bags. After the treatment process is complete, Make-A-Purse discharges the water-chemical mixture back into the river. This is a problem for Make-A-Shirt, which uses water from the river in the process of dying its shirt, as the chemical turns their shirts black. Make-A-Purse has the option to install a filtration system to remove the chemical from it's discharge for an annual cost of $500,000. If the discharge is released into the river unfiltered the chemical becomes more diluted and more costly to filter from the water. Therefore, Make-A-Shirt can install a filtration system to remove the chemical from any water it draws from the river, but the annual cost of the filtration system is $le+06. Prior to the arrival of Make-A-Purse, Make-A-Shirt was earning $1e+07 in total revenue with $8,500,000 in total production costs. The new Make-A-Purse facility is expected to earn total revenue of $6e+06 with total costs of $5,600,000. Start by considering the case where there is no prohibition on the release of the chemical into the water. 2 a. What bargain would you expect the Make-A-Shirt and the new Make-A-Purse to enter into? b. Is this an economically efficient outcome? Explain your answer. Now consider the case where downstream facilities, such as Make-A-Shirt, have the right to clean water and can easily and costlessly sue upstream facilities for damages due to contamination of the water. c. What bargain would you expect the Make-A-Shirt and the new Make-A-Purse to enter into? d. Is this an economically efficient outcome? Explain your

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

OPEC Twenty Years And Beyond

Authors: Ragaei El Mallakh

1st Edition

1317244737, 9781317244738

More Books

Students also viewed these Economics questions

Question

activity diagram for Online Movie booking system

Answered: 1 week ago