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

question 60

Multiple Choice

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
-Under Scenario 18.1, suppose the body of water lies on an international boundary, and the fishermen speak a different language than the factory managers. The efficient outcome cannot be achieved if the cost of hiring translators for both parties:

• A) is less than $4,000.
• B) equals $5,000.
• C) is greater than $6,000.
• D) none of the above

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Definitions:

Price Reduction

A strategy involving the lowering of the selling price of products or services, typically to attract more customers or respond to market competition.

Traceable Fixed Expense

Fixed costs that can be directly associated with a specific cost center or business segment.

Net Operating Income

The total profit of a company after subtracting operating expenses but before deducting taxes and interest.

Price Reduction

A decrease in the regular selling price of a product or service, usually to stimulate sales or clear inventory.