Homework Help is Here – Start Your Trial Now!
Business
Economics
The company Tough Textiles is considering to dispose its chemical waste into a nearby river. These chemicals will affect downstream fish reproduction, greatly reducing the number of fish that fishermen will be able to catch in the river. At a cost of $200, Tough Textiles can filter out the toxins in the chemical waste. By doing this, there would be no effect on fish reproduction, and hence, fishermen's businesses would not be affected. The relevant profits (in thousands of dollars) for the two parties involved are listed below. With Filter Without Filter |Tough Textiles $300 $500 Fishermen $400 $50 For example, Tough Textiles earns an profit of $500 without the filter. Installing the filter will cost the firm $200, reducing its profits down to $300. Not installing the filter will impose a cost of $350 on the fishermen: without the filter their profits will be only $50, whereas if the filter is installed, their profits will be $400. Tough Textiles and the fishermen are the only economic agents affected by the filter installation. (a) From an economic efficiency perspective, should the filter be installed? Explain. In the remaining parts, suppose that there is no law requiring Tough Textiles to install the filter and currently there is no filter in place. (b) Are the Fishermen willing to pay Tough Textiles to install the filter? If so, what is the maximum Fishermen are willing to pay Tough Textiles to install the filter? (c) If negotiations are free, will Tough Textiles and the fishermen come to an agféement that results in the filter being installed? If your answer is no, then explain why this is the case. If your answer is yes, which party would have to make a payment and what can you say about how much would this payment be? (d) Will an agreement be possible if negotiations requires a lawyer at a cost of $200? ´

The company Tough Textiles is considering to dispose its chemical waste into a nearby river. These chemicals will affect downstream fish reproduction, greatly reducing the number of fish that fishermen will be able to catch in the river. At a cost of $200, Tough Textiles can filter out the toxins in the chemical waste. By doing this, there would be no effect on fish reproduction, and hence, fishermen's businesses would not be affected. The relevant profits (in thousands of dollars) for the two parties involved are listed below. With Filter Without Filter |Tough Textiles $300 $500 Fishermen $400 $50 For example, Tough Textiles earns an profit of $500 without the filter. Installing the filter will cost the firm $200, reducing its profits down to $300. Not installing the filter will impose a cost of $350 on the fishermen: without the filter their profits will be only $50, whereas if the filter is installed, their profits will be $400. Tough Textiles and the fishermen are the only economic agents affected by the filter installation. (a) From an economic efficiency perspective, should the filter be installed? Explain. In the remaining parts, suppose that there is no law requiring Tough Textiles to install the filter and currently there is no filter in place. (b) Are the Fishermen willing to pay Tough Textiles to install the filter? If so, what is the maximum Fishermen are willing to pay Tough Textiles to install the filter? (c) If negotiations are free, will Tough Textiles and the fishermen come to an agféement that results in the filter being installed? If your answer is no, then explain why this is the case. If your answer is yes, which party would have to make a payment and what can you say about how much would this payment be? (d) Will an agreement be possible if negotiations requires a lawyer at a cost of $200? ´

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 5PA
See similar textbooks
icon
Related questions
Question
-- The company Tough Textiles is considering to dispose its chemical waste into a nearby river. These chemicals will affect downstream fish reproduction, greatly reducing the number of fish that fishermen will be able to catch in the river. At a cost of $200, Tough Textiles can filter out the toxins in the chemical waste. By doing this, there would be no effect on fish reproduction, and hence, fishermen's businesses would not be affected. The relevant profits (in thousands of dollars) for the two parties involved are listed below. With Filter Without Filter Tough Textiles $300 $500 Fishermen $400 $50 For example, Tough Textiles earns an profit of $500 without the filter. Installing the filter will cost the firm $200, reducing its profits down to $300. Not installing the filter will impose a cost of $350 on the fishermen: without the filter their profits will be only $50, whereas if the filter is installed, their profits will be $400. Tough Textiles and the fishermen are the only economic agents affected by the filter installation. (a) From an economic efficiency perspective, should the filter be installed? Explain. In the remaining parts, suppose that there is no law requiring Tough Textiles to install the filter and currently there is no filter in place. (b) Are the Fishermen willing to pay Tough Textiles to install the filter? If so, what is the maximum Fishermen are willing to pay Tough Textiles to install the filter? (c) If negotiations are free, will Tough Textiles and the fishermen come to an agféement that results in the filter being installed? If your answer is no, then explain why this is the case. If your answer is yes, which party would have to make a payment and what can you say about how much would this payment be? (d) Will an agreement be possible if negotiations requires a lawyer at a cost of $200?
Transcribed Image Text:-- The company Tough Textiles is considering to dispose its chemical waste into a nearby river. These chemicals will affect downstream fish reproduction, greatly reducing the number of fish that fishermen will be able to catch in the river. At a cost of $200, Tough Textiles can filter out the toxins in the chemical waste. By doing this, there would be no effect on fish reproduction, and hence, fishermen's businesses would not be affected. The relevant profits (in thousands of dollars) for the two parties involved are listed below. With Filter Without Filter Tough Textiles $300 $500 Fishermen $400 $50 For example, Tough Textiles earns an profit of $500 without the filter. Installing the filter will cost the firm $200, reducing its profits down to $300. Not installing the filter will impose a cost of $350 on the fishermen: without the filter their profits will be only $50, whereas if the filter is installed, their profits will be $400. Tough Textiles and the fishermen are the only economic agents affected by the filter installation. (a) From an economic efficiency perspective, should the filter be installed? Explain. In the remaining parts, suppose that there is no law requiring Tough Textiles to install the filter and currently there is no filter in place. (b) Are the Fishermen willing to pay Tough Textiles to install the filter? If so, what is the maximum Fishermen are willing to pay Tough Textiles to install the filter? (c) If negotiations are free, will Tough Textiles and the fishermen come to an agféement that results in the filter being installed? If your answer is no, then explain why this is the case. If your answer is yes, which party would have to make a payment and what can you say about how much would this payment be? (d) Will an agreement be possible if negotiations requires a lawyer at a cost of $200?
Expert Solution
steps

Step by step

Solved in 2 steps with 1 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Bonus Compensation Scheme
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Principles of Microeconomics
Principles of Microeconomics
Economics
ISBN:
9781305156050
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Microeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
Economics
ISBN:
9781305971493
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics, 7th Edition (MindTap Cou…
Principles of Economics, 7th Edition (MindTap Cou…
Economics
ISBN:
9781285165875
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics 2e
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
SEE MORE TEXTBOOKS