Scenario 18.1:
It is the factory's choice whether to install a filter. It is the choice of the nearby fishermen whether to install a treatment plant. Dollar figures show profit. The factory and the fishermen can negotiate costlessly, and no one else is affected by the result.
Factory Fishermen
A: No filter or treatment plant $10,000 $2,000
B: Filter; no treatment plant $6,000 $10,000
C: No filter; treatment plant $10,000 $4,000
D: Filter; treatment plant $6,000 $6,000
-Refer to Scenario 18.1. What should the fishermen do if they know the factory will maximize profits and no negotiation is possible?
A) Install a treatment plant.
B) Do not install a treatment plant.
C) It makes no difference if the fishermen do or do not install a treatment plant.
D) Install a filter.
E) Exit the industry.

Question

Quizplus · Accepted Answer

The fishermen should install a treatment plant. If the factory maximizes profits and no negotiation is possible, the factory will choose option C (no filter; treatment plant) which results in a profit of $10,000 for the factory and $4,000 for the fishermen. However, if the fishermen install a treatment plant, the factory will choose option D (filter; treatment plant) which results in a profit of $6,000 for both the factory and the fishermen. Therefore, the fishermen's best option is to install a treatment plant in order to ensure a higher profit for themselves.

Scenario 18.1: It Is the Factory's Choice Whether to Install a Filter