Answer:
a. Would it be economically efficient for the dentist to buy and put up a shield? Why or why not? By how much would total surplus change?
No, it is not economically efficient for the dentist to buy the shield.
b. Would it be economically efficient for the radio station to buy and put up a shield? Why or why not? By how much would total surplus change?
No, it is not economically efficient for the radio to buy the shield.
c. Would it be economically efficient for the dentist to buy a new drill? Why or why not? By how much would total surplus change?
No, it is not economically efficient for the dentist to buy the drill.
d. Would it be efficient for the radio station to buy the dentist a new drill? Why or why not? By how much would total surplus change?
Yes, it is economically efficient for the radio to buy the dentist a new drill. The Coase Theorem is an economic theory that states that economic conflicts must be solved regardless of who had the initial rights of whatever is on dispute. In this case, the dentist is causing harm to the radio, but he is doing OK. So the radio has a problem, not the dentist. The radio needs to solve its problem, so they should buy the dentist a new drill.
The economic surplus = $10,000 - $6,000 = $4,000, that means that the radio will be $4,000 better.
