Question 1 (1 point) The production of paper creates water pollutants such as Ni

Question

Question 1 (1 point) The production of paper creates water pollutants such as Nitrogen and Phosphorus. The Nitrogen and Phosphorus can cause 'algae blooms' in the river and kill fish and other aquatic animals. As illustrated in the following Figure. Suppose we have two parties here: the paper mill and a representative fisherman. If the fisherman has the right of the river and the transaction cost is zero, after the Coase bargain the quantity of paper will change from marginal external benefit is zero. to Assume Price of paper( S per ton) 15r MSC 14 MSB-Marginal social benefits MSC= Marginal social costs MC-Marginal private costs 13 12 D MSB 0 40 50 6070 Quantity of paper(millions oftons) 50 millinn tons nf naner 60 millinn tons nf naner

Explanation / Answer

The answer is 60 to 50 units.

Reason

As the fisherman has the right to the river, he will charge the paper mill absolutely the amount of damage he is doing to the river, which reduces the production from 60 to 50 units.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---