Suppose that a food processing plant and a chemical factory are located close to each other on the banks of a river. The chemical factory uses the river to discharge its emissions. The food processing plant (located somewhere downstream) suffers damages from the emissions as it requires clean water for its operations. Assuming MAC = 240-2E and MD = 3E, answer the following questions. Draw this diagram before answering the questions below. You will be asked to upload the diagram at the end of this assignment.

1. If the chemical factory has the right to use the river ( or has the property right,

(i) what amount of emissions is it likely to choose when there is no bargaining yet?

(ii) what amount of emissions is it likely to choose when they reach a bargaining equilibrium?

(iii) what is the net gain to the chemical factory in the bargaining equilibrium ( i.e from bargaining compared to the situation where they do not bargain)? Remember net gain/benefit means total benefits - total costs.

(iv) what is the net gain to the food processing plant in the bargaining equilibrium ( i.e from bargaining compared to the situation where they do not bargain)? Remember net gain/benefit means total benefits - total costs.

[ Show clearly how you got your answers clearly to receive full credit.]