The current competitive market price of fish is $3 per pound.A chemical producer emits effluent into a lake used by a commercial fishing firm.Each ton of chemical output causes a 20-pound reduction in the annual catch of the fishing firm.Assuming that transactions costs are zero and the chemical firm has the legal right to dump effluent into the lake,

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The fishing firm incurs a cost of $3 per pound of fish lost due to the chemical output. Each ton of chemical output causes a reduction of 20 pounds of fish catch, which translates to a cost of $60 per ton of chemicals emitted ($3 per pound lost x 20 pounds lost per ton). Therefore, the fishing firm would be willing to pay up to $60 per ton of chemicals per year to induce the chemical firm to reduce chemical output.

The Current Competitive Market Price of Fish Is $3 Per