When the ketchup factory uses the recycling method, the boat tour earns $1,900−$1,100=$800$1,900−$1,100=$800 more per week than it does with no recycling. Therefore, the boat tour should be willing to pay up to $800 per week for the ketchup factory to recycle water. However, the recycling method decreases the ketchup factory's economic profit by $2,400−$2,100=$300$2,400−$2,100=$300 per week. Therefore, the ketchup factory should be willing to use the recycling method if it is compensated with at least $300 per week.
Suppose the boat tour has the property rights to the river. That is, the boat tour has the right to a clean (unpolluted) river. In this case, assuming the two firms can bargain at no cost, the ketchup factory will the recycling method and will pay the boat tour per week.
Now, suppose the ketchup factory 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 ketchup factory will the recycling method, and the boat tour will pay the ketchup factory per week.
The boat tour will make the most economic profit when .
True or False: The river will remain polluted, regardless of who has the property rights.
True
False