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:

Economies of Scope

Cost advantages that a business experiences by producing a wider variety of products, rather than specializing in one product or service.

Economies of Scope

Cost advantages that a business achieves due to a variety of goods or services rather than specializing in a single product.

Multiproduct Cost Function

A Multiproduct Cost Function calculates the cost of producing different products within the same firm, taking into account the cost interactions between producing multiple products.

Economies of Scope

Cost advantages that a business experiences by producing a wider variety of products, as opposed to specializing in a single product or service.