Suppose a paper mill earns $1,000,000 in profits when it pollutes a river, and it can abate pollution at a cost of $120,000. The effects of the pollution are confined to a single farmer who earns $400,000 if the water he uses from the river is clean, and $300,000 if it's polluted. Suppose the law guarantees the farmer access to clean water from the river. Which of the following describes an efficient outcome in this case?
A. The owner of the mill is unable to pay the farmer enough to secure his permission to pollute the river.
B. The farmer is unable to pay the owner of the mill enough to get him to stop polluting.
C. The owner of the mill pays the farmer $110,000 for his permission to pollute the river.
D. The farmer pays the owner of the mill $90,000 to stop polluting.
C. The owner of the mill pays the farmer $110,000 for his permission to pollute the river.
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A) Freedom of entry B) Price taking behavior C) Perfect and complete information D) All firms produce identical products. E) All of the above.
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A) 2 B) 3 C) 4 D) 5
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