1. Total economic profit is highest when the tannery pollutes
(cleans up / pollutes) the river.
2. Suppose the campground has the property rights to the river, That is, the
campground has the right to a clean (unpolluted) river. In this case, assuming
the two firms can bargain at no cost, the tannery will clean up
(clean up / pollute) the river and will pay the campground between $
0
and $ 1400
per week (put 0 and 0 if the
tannery will not pay).
3. Now, suppose the tannery has the property rights to the river, including
the right to pollute it, In this case, assuming the two firms can bargain at no
cost, the tannery will pollute
(clean up / pollute) the river, and
the campground will pay the tannery between $ 0
and $
600
per week (put O and O if the campground will not pay).
4. The campground will make the most profit when the campground
(tannery/campground) has the property right.
