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Question: consider a lake found in the town of center barnstead...

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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 labs waste decreases the campgrounds economic profit. aD 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 labs economic profit is $2,200 per week, and the campgrounds economic profit is $3,200 per week. If the research lab does not use the recycling method then the research labs economic profit is $3,000 per week, and the campgrounds 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 labs economic profit and the campgrounds economic profit combined) with and without recycling Research Lab (Dollars) 3,000 2,200 Profit Campground (Dollars) 2,000 3,200 Total Action No Recycling Recycling (Dollars)

Total economic profit is highest when the recycling production method is When the research lab uses the recycling method, the campground earns S3,200 $2,000S1,200 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 labs 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. 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 week the recycling method, and the campground will pay the research lab per The research lab will make the most economic profit when True or False: The research lab will use the recycling method only if the campground has the property rights True False

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