Mr. Leghorn lives next door to Mr. Fudd. During hunting season, Mr. Fudd likes to shoot rabbits in his backyard, which activity he values at $900. The noise from the shooting disturbs Mr. Leghorn and prevents him from taking afternoon naps, which he values at $500. If Mr. Leghorn has the legal right to stop Mr. Fudd from hunting, the socially optimal outcome is for:

Question

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The socially optimal outcome would be for both parties to reach a negotiated agreement where Mr. Fudd compensates Mr. Leghorn for the cost of the noise. In this case, Mr. Fudd values hunting at $900, and Mr. Leghorn values his afternoon naps at $500, so it would be socially optimal for Mr. Fudd to pay Mr. Leghorn between $500 and $900 to continue hunting. This compensation would ensure that both individuals are better off and would lead to an outcome where both of their preferences are taken into account.

Mr Leghorn Lives Next Door to Mr