Suppose Erie Textiles Can Dispose of Its Waste "For Free

question 48

Multiple Choice

Suppose Erie Textiles can dispose of its waste "for free" by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces fish and bird reproduction. This causes damage to local fishermen and bird watchers. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen and bird watchers will not suffer any damage. The relevant gains and losses (in thousands of dollars) for the three parties are listed below. $$\begin{array} { | l | c | c | } \hline & \text { With Filter } & \text { Without Filter } \\\hline \text { Gains to Erie } & \$ 200 & \$ 400 \\\hline \text { Fisherman } & \$ 180 & \$ 50 \\\hline \text { Bird Watchers } & \$ 130 & \$ 25 \\\hline\end{array}$$ If all three parties can communicate and negotiate with each other at no cost, will Erie Textiles use a filter?

• A)No, because it makes $200 less in profit with the filter.
• B)Yes, because the benefit it would receive from being able to advertise that it acts in an environmentally responsible way exceeds the cost of using a filter.
• C)No, because use of a filter would result in smaller total economic surplus.
• D)Yes, because fishermen and bird watchers are willing to pay enough to Erie Textiles to offset the cost of using a filter.

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Definitions:

Synergy

The cooperation or interplay between two or more entities, materials, or forces, resulting in a combined outcome that surpasses the total effects of each one operating independently.

Out Of The Box

Thinking or ideas that are creative and unconventional, not limited by existing norms or perceptions.

Technical Prowess

Technical prowess refers to expertise or skill in a particular technical field or discipline.

Meetings

Gatherings of people, physically or virtually, to discuss and decide on various topics or issues.