Microeconomics Quiz
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MARKET FAILURE, EFFICIENCY & PUBLIC POLICY
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A steel mill pollutes a river, harming a downstream fish farm. The mill could install a filter for $300, which would eliminate the pollution. The farm could install a water purification system for $500. In the absence of either of these measures, the pollution causes $700 in damages to the farm. Assuming transaction costs are negligible, which of the following statements describes a socially efficient outcome according to the Coase theorem?
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