**Consider a lake found in the town of Center Barnstead, and then answer the questions that follow.**---The town has a campground whose visitors use the lake for recreation. The town 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.---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 $2,200 per week, and the campground's economic profit is $3,200 per week.- If the research lab does not use the recycling method, then the research lab's economic profit is $3,000 per week, and the campground's economic profit is $2,000 per week.These figures are summarized in the following table.| Action | Profit Research Lab (Dollars) | Profit Campground (Dollars) | Total Profit (Dollars) ||------------------|------------------------------|----------------------------|------------------------|| No Recycling | 3,000 | 2,000 | || Recycling | 2,200 | 3,200 | |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.**Total economic profit is highest when the recycling production method is** ____________. ---**Explanation of Tables and Figures:**- The table lists two actions: No Recycling and Recycling. For each action, it shows the profit for the research lab and campground and requires the total profit to be calculated.- The scenario indicates a trade-off in profits between the research lab and the campground depending on the recycling decision. When the research lab uses the recycling method, the campground earns $3,200 − $2,000 = $1,200 more per week than it does with no recycling. Therefore, the campground should be willing to pay up to $1,200 per week for the research lab to recycle water. However, the recycling method decreases the research lab's economic profit by $3,000 − $2,200 = $800 per week. Therefore, the research lab should be willing to use the recycling method if it is compensated with at least $800 per week.**Scenario 1: Campground with Property Rights**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 use the recycling method and will pay the campground $800 per week.**Scenario 2: Research Lab with Property Rights**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 not use the recycling method, and the campground will pay the research lab $1,200 per week.**Economic Profit Maximization**The research lab will make the most economic profit when the recycling method is not used.**True or False Question**True or False: The lake will remain polluted, regardless of who has the property rights.- O True- O False

Externality can be internalized if transaction cost is zero, both parties will negotiate a price…

Consider a lake found in the town of Center Barnstead, and then answer the questions that follow. The town has a campground whose visitors use the lake for recreation. The town 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. 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 $2,200 per week, and the campground's economic profit is $3,200 per week. If the research lab does not use the recycling method, then the research lab's economic profit is $3,000 per week, and the campground's economic profit is $2,000 per week. These figures are summarized in the following table. 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. Profit Research Lab Campground Total Action (Dollars) (Dollars) (Dollars) No Recycling 3,000 2,000 Recycling 2,200 3,200 Total economic profit is highest when the recycling production method is

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC