Complete the following table by computing the total profit (the research lab's economic profit and the campground's economic profit combined) with and without recycling. Action No Recycling Recycling Research Lab (Dollars) 2,700 2,000 Profit Campground (Dollars) 1,900 2,900 Total (Dollars) Total economic profit is highest when the recycling production method is When the research lab uses the recycling method, the campground earns $2,900 - $1,900 = $1,000 more per week than it does with no recycling. Therefore, the campground should be willing to pay up to $1,000 per week for the research lab to recycle water. However, the recycling method decreases the research lab's economic profit by $2,700 - $2,000 = $700 per week. Therefore, the research lab should be willing to use the recycling method if it is compensated with at least $700 per week. Suppose the campground has the property rights to the lake. That is, the campground has the right to a clean (unpolluted) lake. In this case, assuming the two firms can bargain at no cost, the research lab will the recycling method and will pay the campground per week. Now, suppose the research lab has the property rights to the lake, including the right to pollute it. In this case, assuming the two firms can bargain a no cost, the research lab will the recycling method, and the campground will pay the research lab pe week.

Principles of Economics 2e
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Chapter12: Environmental Protection And Negative Externalities
Section: Chapter Questions
Problem 10SCQ: Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table 12.8 shows the...
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Complete the following table by computing the total profit (the research lab's economic profit and the campground's economic profit combined) with
and without recycling.
Action
No Recycling
Recycling
Research Lab
(Dollars)
2,700
2,000
Profit
Campground
(Dollars)
1,900
2,900
Total economic profit is highest when the recycling production method is
Total
(Dollars)
When the research lab uses the recycling method, the campground earns $2,900 - $1,900 = $1,000 more per week than it does with no recycling.
Therefore, the campground should be willing to pay up to $1,000 per week for the research lab to recycle water. However, the recycling method
decreases the research lab's economic profit by $2,700 - $2,000 = $700 per week. Therefore, the research lab should be willing to use the recycling
method if it is compensated with at least $700 per week.
Suppose the campground has the property rights to the lake. That is, the campground has the right to a clean (unpolluted) lake. In this case,
assuming the two firms can bargain at no cost, the research lab will
the recycling method and will pay the campground
per week.
Now, suppose the research lab 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 research lab will
the recycling method, and the campground will pay the research lab
per
week.
True
The campground will make the most economic profit when
False
True or False: The lake will remain polluted, regardless of who has the property rights.
Transcribed Image Text:Complete the following table by computing the total profit (the research lab's economic profit and the campground's economic profit combined) with and without recycling. Action No Recycling Recycling Research Lab (Dollars) 2,700 2,000 Profit Campground (Dollars) 1,900 2,900 Total economic profit is highest when the recycling production method is Total (Dollars) When the research lab uses the recycling method, the campground earns $2,900 - $1,900 = $1,000 more per week than it does with no recycling. Therefore, the campground should be willing to pay up to $1,000 per week for the research lab to recycle water. However, the recycling method decreases the research lab's economic profit by $2,700 - $2,000 = $700 per week. Therefore, the research lab should be willing to use the recycling method if it is compensated with at least $700 per week. Suppose the campground has the property rights to the lake. That is, the campground has the right to a clean (unpolluted) lake. In this case, assuming the two firms can bargain at no cost, the research lab will the recycling method and will pay the campground per week. Now, suppose the research lab 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 research lab will the recycling method, and the campground will pay the research lab per week. True The campground will make the most economic profit when False True or False: The lake will remain polluted, regardless of who has the property rights.
8. The effects of property rights on achieving efficiency
Consider a lake found in the village of Sturbridge, and then answer the questions that follow.
The village has a campground whose visitors use the lake for
recreation. The village also has a research lab that dumps
industrial waste into the lake. This pollutes the lake and
makes it a less desirable vacation destination. That is, the
research lab's waste decreases the campground's economic
profit.
ww
Suppose that the research lab 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 campground would no longer be affected. If the research lab uses the recycling method, then the research lab's
economic profit is $2,000 per week, and the campground's economic profit is $2,900 per week. If the research lab does not use the recycling method,
then the research lab's economic profit is $2,700 per week, and the campground's economic profit is $1,900 per week. These figures are summarized
in the following table.
Transcribed Image Text:8. The effects of property rights on achieving efficiency Consider a lake found in the village of Sturbridge, and then answer the questions that follow. The village has a campground whose visitors use the lake for recreation. The village also has a research lab that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the research lab's waste decreases the campground's economic profit. ww Suppose that the research lab 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 campground would no longer be affected. If the research lab uses the recycling method, then the research lab's economic profit is $2,000 per week, and the campground's economic profit is $2,900 per week. If the research lab does not use the recycling method, then the research lab's economic profit is $2,700 per week, and the campground's economic profit is $1,900 per week. These figures are summarized in the following table.
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