2. The above figure shows the payoff matrix for two firms. A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake. A private beach on the lake must decide whether to operate or not. Increased pollution reduces the number of people who wish to visit the beach. a) Determine the Nash equilibrium without property rights. b) If the chemical firm owns the lake and the beach owner must pay the chemical firm $10 to produce only one ton of pollution, what is the outcome? c) If the beach owner owns the lake and the chemical firm must pay $10 per ton of pollution, what is the outcome? d) Compare results of part a, b, and c.
2. The above figure shows the payoff matrix for two firms. A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake. A private beach on the lake must decide whether to operate or not. Increased pollution reduces the number of people who wish to visit the beach. a) Determine the Nash equilibrium without property rights. b) If the chemical firm owns the lake and the beach owner must pay the chemical firm $10 to produce only one ton of pollution, what is the outcome? c) If the beach owner owns the lake and the chemical firm must pay $10 per ton of pollution, what is the outcome? d) Compare results of part a, b, and c.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter12: Environmental Protection And Negative Externalities
Section: Chapter Questions
Problem 24RQ: As the extent of environmental protection expands, would you expect the marginal benefits of...
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