Action No Recycling Recycling Research Facility (Dollars) 1,800 1,100 Profit Kayak Rental (Dollars) 1,500 2,600 Total economic profit is highest when the recycling production method is When the research facility uses the recycling method, the kayak rental earns $2,600 - $1,500 = $1,100 more per week than it does with no recycling. Therefore, the kayak rental should be willing to pay up to $1,100 per week for the research facility to recycle water. However, the recycling method decreases the research facility's economic profit by $1,800 - $1,100 = $700 per week. Therefore, the research facility should be willing to use the recycling method if it is compensated with at least $700 per week. Total (Dollars) Suppose the kayak rental has the property rights to the lake. That is, the kayak rental has the right to a clean (unpolluted) lake. In this case, assuming the two firms can bargain at no cost, the research facility will the recycling method and will pay the kayak rental per week. O True Now, suppose the research facility 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 facility will the recycling method, and the kayak rental will pay the research facility O False per week. The research facility will make the most economic profit when True or False: The research facility will use the recycling method only if the kayak rental has the property rights.
Action No Recycling Recycling Research Facility (Dollars) 1,800 1,100 Profit Kayak Rental (Dollars) 1,500 2,600 Total economic profit is highest when the recycling production method is When the research facility uses the recycling method, the kayak rental earns $2,600 - $1,500 = $1,100 more per week than it does with no recycling. Therefore, the kayak rental should be willing to pay up to $1,100 per week for the research facility to recycle water. However, the recycling method decreases the research facility's economic profit by $1,800 - $1,100 = $700 per week. Therefore, the research facility should be willing to use the recycling method if it is compensated with at least $700 per week. Total (Dollars) Suppose the kayak rental has the property rights to the lake. That is, the kayak rental has the right to a clean (unpolluted) lake. In this case, assuming the two firms can bargain at no cost, the research facility will the recycling method and will pay the kayak rental per week. O True Now, suppose the research facility 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 facility will the recycling method, and the kayak rental will pay the research facility O False per week. The research facility will make the most economic profit when True or False: The research facility will use the recycling method only if the kayak rental has the property rights.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter16: Government Regulation
Section: Chapter Questions
Problem 10E
Related questions
Question
Transcribed Image Text:Action
No Recycling
Recycling
Research Facility
(Dollars)
1,800
1,100
Profit
Kayak Rental
(Dollars)
1,500
2,600
Total economic profit is highest when the recycling production method is
Total
(Dollars)
When the research facility uses the recycling method, the kayak rental earns $2,600 - $1,500 = $1,100 more per week than it does with no recycling.
Therefore, the kayak rental should be willing to pay up to $1,100 per week for the research facility to recycle water. However, the recycling method
decreases the research facility's economic profit by $1,800 - $1,100 = $700 per week. Therefore, the research facility should be willing to use the
recycling method if it is compensated with at least $700 per week.
O True
O False
Suppose the kayak rental has the property rights to the lake. That is, the kayak rental has the right to a clean (unpolluted) lake. In this case,
assuming the two firms can bargain at no cost, the research facility will
the recycling method and will pay the kayak rental
per week.
Now, suppose the research facility 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 facility will
the recycling method, and the kayak rental will pay the research facility
per week.
The research facility will make the most economic profit when
True or False: The research facility will use the recycling method only if the kayak rental has the property rights.
Transcribed Image Text:Consider a lake found in the town of Center Barnstead, and then answer the questions that follow.
The town has a kayak rental whose visitors use the lake for
recreation. The town also has a research facility that dumps
industrial waste into the lake. This pollutes the lake and
makes it a less desirable vacation destination. That is, the
research facility's waste decreases the kayak rental's
economic profit.
Suppose that the research facility 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 kayak rental would no longer be affected. If the research facility uses the recycling method, then the research
facility's economic profit is $1,100 per week, and the kayak rental's economic profit is $2,600 per week. If the research facility does not use the
recycling method, then the research facility's economic profit is $1,800 per week, and the kayak rental's economic profit is $1,500 per week. These
figures are summarized in the following table.
Complete the following table by computing the total profit (the research facility's economic profit and the kayak rental's economic profit combined)
with and without recycling.
Action
No Recycling
Research Facility
(Dollars)
1,800
E
Profit
Kayak Rental
(Dollars)
1,500
Total
(Dollars)
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