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. It would be acceptable to both parties to have the fishermen pay the factory:
A) $0 to install a filter.
B) $500 to install a filter.
C) $4,000 to install a filter.
D) $6,000 to install a filter.
E) any amount greater than $4,000 and less than $6,000 to install the filter and make both parties better off.

Question

Quizplus · Accepted Answer

The factory's profit decreases by $4,000 when installing a filter (from $10,000 to $6,000), while the fishermen's profit increases by $8,000 (from $2,000 to $10,000). Any amount between $4,000 and $6,000 would compensate the factory for its loss and still leave the fishermen with a net gain, making both parties better off.

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