Scenario: a Chemical Factory Is Located Upstream on a River

question 8

Multiple Choice

Scenario: A chemical factory is located upstream on a river. The factory dumps its liquid waste into the river. A microbrewery is located downstream on this river; it uses the river water in its production process and values the clean water. The chemical factory can filter its liquid waste before dumping it into the river, but it would be costly to the factory. The table below shows the profit to these two businesses under different circumstances.

-Refer to scenario above.Suppose the chemical factory has the right to dump its waste into the river.What would the Coase Theorem suggest as the resolution of this negative externality conflict between these two firms?

• A) The microbrewery pays $100 to the chemical factory to filter its waste before dumping it into the river.
• B) The chemical factory voluntarily filters its waste before dumping it into the river.
• C) The microbrewery pays $250 to the the chemical factory to filter its waste before dumping it into the river.
• D) The chemical factory pays $300 to the microbrewery to get permission to dump into the river.

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Definitions:

Intrinsic Value

The actual, inherent value of a security, determined through fundamental analysis without reference to its market value.

Unfriendly Merger

A type of acquisition or merger that takes place without the target company's consent or agreement, often involving hostile tactics.

Hostile Takeover

An acquisition attempt by a company by going directly to the company's shareholders or fighting to replace management to get the acquisition approved.

Competitive Rival

Competitive Rival refers to a competitor within the same industry or market that offers similar products or services, challenging a firm's market share.