Question

Suppose that a surfboard designer owns a building and is renting part of the building's space to a spa. Further suppose that because the surfboard designer is the owner, he has the right to make noise during the day while he sands the boards. While the spa cannot insist on a quiet environment, it could move to a quieter building. However, rent in the next best building is $250/month more than rent in the noisy building. The surfboard designer can adopt a new technology that eliminates the noise for $175/month. Given this situation, can the spa find a private solution with the surfboard designer that will make both better off?
What is the minimum and maximum payment the spa would make to the surfboard designer to get it to install the noise-reducing equipment? NOTE: Round your answers to the nearest dollar.

Minimum:______ $

Maximum: ______ $

Answer 1

Answer:

According to Ronald Coase, in his Coase theorem efficiency in the areas of negative externalities can be achieved through negotiations aimed at reaching conclusions that is places each party in a win-win position.

The minimum the spa would pay the surfboard designer is $175 and the maximum is $250.

Explanation:

Assuming the conclusion reached in the negotiation is for the surfboard designer decides to install the technology that eliminates noise,the spa would have to pay $175 while on other hand ,if agreed between both parties that the surfboard designer shifts to next door ,the spa would cough out $250,the increase cost of renting in the next building.