Suppose that the tannery can use a production method that includes water recycling. This would reduce the pollution in the river to levels that are safe for recreation and would no longer affect the resort. If the tannery uses the recycling method, the tannery's profits are $1,500 per week and the resort's profits are $1,700 per week. If the tannery does not use the recycling method, the tannery's profits are $2,000 per week and the resort's profits are $1,000 per week.
4.4. Which of the following statements is correct?
A. The resort will make the most profit when the tannery has the property rights to pollute the river, and the tannery will make the most profit when the resort has property rights to a clean river.
B. The resort will make the most profit when it has property rights to a clean river, and the tannery will make the most profit when it has the property rights to pollute the river.
C. Both firms will be equally well off, regardless of the initial distribution of property rights.
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