Suppose Erie Textiles Can Dispose of Its Waste "For Free

question 109

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. $$\begin{array} { | l | c | c | } \hline & \text { With Filter } & \text { Without Filter } \\\hline \text { Gains to Erie } & \$ 200 & \$ 400 \\\hline \text { Fisherman } & \$ 180 & \$ 50 \\\hline \text { Bird Watchers } & \$ 130 & \$ 25 \\\hline\end{array}$$ The cost (in thousands of dollars) of the filter to Erie Textiles is ______, and the net benefit (in thousands of dollars) of the filter to the fishermen and bird watchers is _______.

• A)$400; $310
• B)$310; $200
• C)$200; $75
• D)$200; $235

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Definitions:

Network Externalities

The effect that one user of a good or service has on the value of that product to other people, often positive, as the number of users increases.

Product Variety

The variety of products or services a company provides or that are accessible in a marketplace.

Cost Diseconomies

Situations where costs per unit increase as a firm's operation scales up, often due to inefficiencies or increased complexity.

Celebrity Endorsement

The practice of using a famous person's support or approval to promote a product or service, leveraging their influence to reach potential customers.