-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 chemical firm owns the lake,and the beach owner must pay $10 to keep the chemical firm at just one ton of pollution,then

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Given that the chemical firm owns the lake, it has the power to decide the level of pollution. If the beach owner pays $10 to keep the pollution at one ton, it indicates that operating the beach is still profitable under these conditions. Therefore, the beach operates, and the chemical firm produces one ton of pollution, as this scenario allows both parties to benefit: the beach from operating and the chemical firm from receiving the $10 while limiting pollution.

-The Above Figure Shows the Payoff Matrix for Two Firms