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Unformatted text preview: ECO356 Homework 6: Name __________________________ Due May 12, 2009 (No late homework) A factory pollutes a lake which is also used by twenty vacation resorts. It would cost the factory $1,000,000 a year to prevent the pollution. Each resort faces the following alternatives (remember that there are twenty resorts): a. Operate as a resort on an unpolluted lake, making $100,000/year profit. b. Operate as a resort on a polluted lake, making $40,000/year profit. c. Operate as a hunting lodge, making $60,000/year profit, whether or not the lake is polluted 1. What is the efficient solution? A. The factory should (pollute/not pollute) B. The resorts should be operated as (resorts/hunting lodges) Resort no pollution = 2,000,000-1,000000 = 1,000,000. Lodge no pollution = 1,200,000 – 1,000,000 = 200,000. Resort w pollution = 2,000,000 – 1,000,000 = 1,000,000. *Lodge w pollution 1,200,000 The cost of converting resorts to lodges is less than the cost of controlling emissions, so that is the efficient outcome. The cost of converting resorts to lodges is less than the cost of controlling emissions, so that is the efficient outcome....
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This note was uploaded on 11/07/2010 for the course ECO 356 taught by Professor Nkdnk during the Fall '09 term at CUNY Hunter.
- Fall '09