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Ben produces chemical compounds that sell for $500 in the market

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Ben produces chemical compounds that sell for $500 in the market. This production process generates waste which Ben can dispose of in the river for free, or he can pay $300 for professional waste disposal services. The river is also used by swimmers and fishermen, who value having a clean river at $120 and $190 each. Assume there are no negotiation or transaction costs.
a) What is the socially optimal outcome in this situation?
b) If there are no regulations on how Ben should dispose of his waste, how is the optimal outcome likely to be achieved?
c) If Ben will be fined $500 for dumping his waste in the river, how does this change the optimal outcome?

Your answer will be marked according to the following categories.

• PART A
• PART B
• PART C
• General Clarity of Explanation