Plastics, Inc. and Joe's Canoe Shack both operate businesses located on the river. Plastics, Inc. dumps...

Plastics, Inc. and Joe's Canoe Shack both operate businesses located on the river. Plastics, Inc. dumps pollution into the river, which results in fewer canoe rentals for Joe. The marginal cost of cleaning up the pollution is $20,000 for Plastics, Inc. Joe estimates a reduction in pollution will lead to a marginal benefit of $13,000.

a. If Joe owns the rights to the river, which of the following is the most likely outcome?

Below is a set of projects aimed at cleaning up a city's recreational areas. Determine whether the city should undertake the cleanup effort. Assume the city has enough money in its budget to undertake all projects.

Project	Marginal Cost	Marginal Benefit	Clean Up?
North Park	$12,000	$15,000	(Click to select) Yes No
Upper River Beach	7,000	4,000	(Click to select) Yes No
South Shore	21,000	29,000	(Click to select) No Yes
Green Creek	2,000	1,400	(Click to select) Yes No

Plastics will use its property rights to continue polluting.
Plastics will pay Joe $17000 to pollute.
Joe will pay Plastics $17000 not to pollute.
Joe will enforce his property rights and not allow Plastics to pollute.

b. If Plastics, Inc. owns the rights to the river, which of the following is the most likely outcome?

Joe will enforce his property rights and not allow Plastics to pollute.
Joe will pay Plastics $17000 not to pollute.
Plastics will use its property rights to continue polluting.
Plastics will pay Joe $17000 to pollute.

Expert Solution

Project	Marginal Cost	Marginal Benefit	Net benefit(Marginal benefit-marginal cost)(in dollars)	Clean Up?
North Park	$12,000	$15,000	3000 (15000-12000)	Yes
Upper River Beach	7,000	4,000	-3000 (4000-7000)	No
South Shore	21,000	29,000	8000 (29000-21000)	Yes
Green Creek	2,000	1,400	-600 (1400-2000)	No

The city would undertake the cleanup effort in projects where net benefit is positive.

Marginal cost of cleaning up the pollution for Plastics, Inc. = $20,000

Marginal benefit of Joe for reduction in pollution = $13,000.

a. If Joe owns the rights to the river, Plastics will pay Joe $17000 so that pollute.

In this scenario, Plastic will gain $3000 (20000-17000) and Joe wil receive an incremental benefit of $4000 (17000-13000)

Explanation: Though Joe has legal claims, here, a good offer make both parties win.

b.If Plastics, Inc. owns the rights to the river, Plastics will use its property rights to continue polluting.

Explanation: Plastic will use the legal claims it possesses before any economic options.

Rahul Sunny answered 2 years ago

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Plastics, Inc. and Joe's Canoe Shack both operate businesses located on the river. Plastics, Inc. dumps...

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