Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The table below shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window.
$$\begin{array} { | l | c | c | }
\hline & \begin{array} { c }
\text { Quick Burger Operates a } \
\text { Drive-Thrmugh Windav }
\end{array} & \begin{array} { c }
\text { Quick Burger Daes Nat } \
\text { Operate Brive-Thraugh Window }
\end{array} \
\hline \text { Quick Burper } & \$ 24,000 & \$ 15,000 \
\hline \text { The Surshine Café } & \$ 11,000 & \$ 23,000 \
\hline
\end{array}$$ Suppose Quick Burger has the legal right to operate a drive-through window, and Quick Burger and the Sunshine Café can negotiate with each other at no cost. Which of the following arrangements would lead to the socially optimal outcome?
A)Quick Burger pays The Sunshine Café $12,500 per month to operate the drive-through window.
B)Quick Burger pays The Sunshine Café $10,500 per month to operate the drive-through window.
C)The Sunshine Café pays Quick Burger $12,500 per month not to operate the drive-through window.
D)The Sunshine Café pays Quick Burger $10,500 per month not to operate the drive-through window.

Question

Consider two restaurants located next door to each other: Quick Burger and The Sunshine Café. If Quick Burger opens a drive-through window, the increased traffic and noise will bother customers seated outside at The Sunshine Café. The table below shows the monthly payoffs to Quick Burger and The Sunshine Café when Quick Burger does and does not operate a drive-through window.  
$$\begin{array} { | l | c | c | } 
\hline & \begin{array} { c } 
\text { Quick Burger Operates a } \
\text { Drive-Thrmugh Windav }
\end{array} & \begin{array} { c } 
\text { Quick Burger Daes Nat } \
\text { Operate Brive-Thraugh Window }
\end{array} \
\hline \text { Quick Burper } & \$ 24,000 & \$ 15,000 \
\hline \text { The Surshine Café } & \$ 11,000 & \$ 23,000 \
\hline
\end{array}$$ Suppose Quick Burger has the legal right to operate a drive-through window, and Quick Burger and the Sunshine Café can negotiate with each other at no cost. Which of the following arrangements would lead to the socially optimal outcome?
A)Quick Burger pays The Sunshine Café $12,500 per month to operate the drive-through window.
B)Quick Burger pays The Sunshine Café $10,500 per month to operate the drive-through window.
C)The Sunshine Café pays Quick Burger $12,500 per month not to operate the drive-through window.
D)The Sunshine Café pays Quick Burger $10,500 per month not to operate the drive-through window.

Quizplus · Accepted Answer

The socially optimal outcome is where the total payoff is maximized. Without the drive-through, the total payoff is $38,000 ($15,000 + $23,000). With the drive-through, it's $35,000 ($24,000 + $11,000). The Sunshine Café paying Quick Burger $10,500 not to operate the drive-through results in a net gain for both, as Quick Burger would receive $25,500 ($15,000 + $10,500), which is more than $24,000, and The Sunshine Café would retain $12,500 ($23,000 - $10,500), which is more than $11,000.

Consider Two Restaurants Located Next Door to Each Other: Quick