-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.If nobody owns the lake,then
A) joint profits are zero.
B) joint profits are maximized.
C) joint profits are not maximized.
D) the beach will not operate because of too much pollution.

Question

-The above figure shows the payoff matrix for two firms.A chemical firm must choose between a low level of production which yields one ton of pollution into a nearby lake and a high level of production which yields two tons of pollution into the nearby lake.A private beach on the lake must decide whether to operate or not.Increased pollution reduces the number of people who wish to visit the beach.If nobody owns the lake,then
A) joint profits are zero. 
B) joint profits are maximized. 
C) joint profits are not maximized. 
D) the beach will not operate because of too much pollution.

Quizplus · Accepted Answer

Joint profits are not maximized because of the "tragedy of the commons," where individual firms' actions (in this case, the chemical firm choosing a high level of production and thus polluting the lake) lead to a suboptimal outcome for the group (reduced profits for both the chemical firm and the beach due to decreased beach attendance).

-The Above Figure Shows the Payoff Matrix for Two Firms