A company earns $70,000 in profit if it is allowed to dump untreated waste in the river and only $40,000 in profit if it is forced to treat the waste before dumping it into the river.The local fishermen earn $35,000 in profit if the river is polluted and $55,000 in profit if the river is not polluted.The fishermen would be willing to pay the company up to ________ not to pollute the river,and the company would be willing to accept a minimum of ________ if it agrees not to pollute the river.
A) $15,000; $30,000
B) $20,000; $30,000
C) $30,000; $20,000
D) $20,000; $5,000

Question

Quizplus · Accepted Answer

The fishermen's maximum willingness to pay (WTP) to not pollute the river is equal to the difference in their profits with and without pollution, which is $55,000 - $35,000 = $20,000.

The company's minimum willingness to accept (WTA) to not pollute the river is equal to the difference in their profits with and without treating the waste, which is $70,000 - $40,000 = $30,000.

Therefore, the best choice is B, where the fishermen are willing to pay up to $20,000 and the company would accept a minimum of $30,000 to not pollute the river.

A Company Earns $70,000 in Profit If It Is Allowed