What is the net gain to the chemical factory in the bargaining equilibrium?

Suppose that a food processing plant and a chemical factory are located close to each
other on the banks of a river. The chemical factory uses the river to discharge its
emissions. The food processing plant (located somewhere downstream) suffers
damages from the emissions as it requires clean water for its operations. Assuming
MAC = 240-2E and MD = 3E, answer the following questions. Draw this diagram before
answering the questions below. You will be asked to upload the diagram at the end of
this assignment.
1. If the chemical factory has the right to use the river ( or has the property right,
(i) what amount of emissions is it likely to choose when there is no bargaining yet?
(ii) what amount of emissions is it likely to choose when they reach a bargaining
equilibrium?
(iii) what is the net gain to the chemical factory in the bargaining equilibrium ( i.e from
bargaining compared to the situation where they do not bargain)? Remember net
gain/benefit means total benefits – total costs.
(iv) what is the net gain to the food processing plant in the bargaining equilibrium ( i.e
from bargaining compared to the situation where they do not bargain)? Remember net
gain/benefit means total benefits – total costs.

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