-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.If the beach owner also owns the lake,and the chemical firm must pay $10 per ton to pollute,then

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If the beach owner also owns the lake and charges the chemical firm $10 per ton to pollute, the chemical firm will choose to produce at a level that minimizes its costs. Producing 1 ton of pollution incurs a lower cost than producing 2 tons, allowing the beach to operate without excessive pollution.

-The Above Figure Shows the Payoff Matrix for Two Firms