Evaluating Unified Ownership as a Solution for Externalities
A large agricultural corporation that uses significant amounts of river water for irrigation is considering acquiring a downstream hydroelectric power plant that has been suffering from reduced water flow due to the corporation's activities. Evaluate this potential merger as a method for resolving the negative externality. In your evaluation, discuss the likely change in the corporation's water usage, the economic reasoning behind this change, and at least one potential limitation or challenge of this approach.
0
1
Tags
Library Science
Economics
Economy
Introduction to Microeconomics Course
Social Science
Empirical Science
Science
CORE Econ
Evaluation in Bloom's Taxonomy
Cognitive Psychology
Psychology
Related
Logging Operations and Water Purity
A chemical factory releases effluent into a river, which harms the fish population and reduces the profits of a commercial fishing company operating downstream. If the chemical factory's parent company purchases the fishing company, how does this merger fundamentally change the factory's decision-making process regarding its production level?
Internalizing a Noise Externality
True or False: If an airport operator purchases a nearby hotel that has been suffering from noise pollution, the new combined company will have a financial incentive to completely cease all night-time flights to maximize the hotel's profitability.
Evaluating Unified Ownership as a Solution for Externalities
Match each business scenario with the most likely economic outcome related to externalities.
A power plant releases warm water into a lake, which negatively affects the operations of a commercial fish hatchery located on the same lake. Initially, the power plant only considers its own production costs. If the power plant's parent company acquires the fish hatchery, how will this change be reflected in the power plant's cost analysis?
A paper mill's production process has a marginal private cost of $30 per ton of paper. For each ton produced, it releases pollutants into a lake that cause $15 worth of damage to a commercial fishing business operating on the same lake. If the paper mill's parent company acquires the fishing business, what will be the marginal cost of paper production from the perspective of the newly combined entity?
A power company that emits air pollutants buys a nearby commercial greenhouse, which has historically suffered from reduced crop yields due to the poor air quality. The primary reason the new, unified company would invest in expensive pollution-control technology is to demonstrate corporate social responsibility.
A manufacturing plant has a marginal private cost of $50 to produce one unit of its product. The production process creates air pollution that causes $10 of damage to the crops of an adjacent farm for each unit produced. If the manufacturing plant's parent company acquires the farm, the marginal cost of production for the newly unified company becomes $____.
Effect of a Merger on Pollution Output