(Solved): Suppose that the research facility could use a different production method that involves recycling ...

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 $\$2,100$ per week, and the kayak rental's economic profit is $\$1,900$ per week. If the research facility does not use the recycling method, then the research facility's economic profit is $\$2,400$ per week, and the kayak rental's economic profit is $\$1,100$ 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. Total economic profit is highest when the recycling production method is When the research facility uses the recycling method, the kayak rental earns $\$1,900?\$1,100=\$800$ more per week than it does with no recycling. Therefore, the kayak rental should be willing to pay up to $\$800$ per week for the research facility to recycle water. However, the recycling method decreases the research facility's economic profit by $\$2,400?\$2,100=\$300$ per week. Therefore, the research facility should be willing to use the recycling method if it is compensated with at least $\$300$ per week. 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 kayak rental will make the most economic profit when True or False: The lake will remain polluted, regardless of who has the property rights. True False