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 hiking lodge whose visitors use the river for recreation. The city also has a chemical plant that dumps industrial waste into the river. This pollutes the river and makes it a less desirable vacation destination. That is, the chemical plant's waste decreases the hiking lodge's economic profit.

8. The effects of property rights on achieving eff

Suppose that the chemical plant 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 hiking lodge would no longer be affected. If the chemical plant uses the recycling method, then the chemical plant's economic profit is $1,500 per week, and the hiking lodge's economic profit is $1,800 per week. If the chemical plant does not use the recycling method, then the chemical plant's economic profit is $2,000 per week, and the hiking lodge's economic profit is $1,000 per week. These figures are summarized in the following table.

Complete the following table by computing the total profit (the chemical plant's economic profit and the hiking lodge's economic profit combined) with and without recycling.

Action

Profit

Chemical Plant

Hiking Lodge

Total

(Dollars)

(Dollars)

(Dollars)

No Recycling 2,000 1,000
Recycling 1,500 1,800
Total economic profit is highest when the recycling production method is (not used/Used).

When the chemical plant uses the recycling method, the hiking lodge earns more per week than it does with no recycling. Therefore, the hiking lodge should be willing to pay up to $800 per week for the chemical plant to recycle water. However, the recycling method decreases the chemical plant's economic profit by per week. Therefore, the chemical plant should be willing to use the recycling method if it is compensated with at least $500 per week.

Suppose the hiking lodge has the property rights to the river. That is, the hiking lodge has the right to a clean (unpolluted) river. In this case, assuming the two firms can bargain at no cost, the chemical plant will (use/ not use) the recycling method and will pay the hiking lodge(A. 0 per week) (B. between 0 and 300 per week) (C. between 300 and 500 per week) (D. between 500 and 800 per week) per week.

Now, suppose the chemical plant 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 chemical plant will(not use/use) the recycling method, and the hiking lodge will pay the chemical plant (A. 0 per week) (B. between 0 and 300 per week) (C. between 300 and 500 per week) (D. between 500 and 800 per week) per week.per week.

The chemical plant will make the most economic profit when .

True or False: The river will remain polluted, regardless of who has the property rights.

True

False

Grade It Now

Save & Continue

At the point when the substance plant utilizes the reusing strategy, the climbing lodge wins more every week than it does with no reusing. Along these lines, the climbing hotel ought to be happy to settle up to $800 every week for the concoction plant to reuse water. Be that as it may, the reusing technique diminishes the substance plant's monetary benefit by every week. In this manner, the compound plant ought to be eager to utilize the reusing strategy in the event that it is remunerated with at any rate $500 every week.

Assume the climbing lodge has the property rights to the stream. That is, the climbing lodge has the option of a clean (unpolluted) waterway. Right now, the two firms can deal at no cost, the compound plant will utilize the reusing technique and will pay the climbing lodge A. 0 every week

Presently, assume the synthetic plant has the property rights to the waterway, including the option to dirty it. Right now, the two firms can deal at no cost, the synthetic plant will utilize the reusing strategy, and the climbing hotel will pay the concoction plant D. somewhere in the range of 500 and 800 every week out of every week.The chemical plant will make the most economic profit when they have the property rights .

True or False: The river will remain polluted, regardless of who has the property rights.

False