A metal-stamping factory moves next to a day care center. Noise from the factory makes it impossible for the kids to nap. It would cost the factory $5 million to move and $1 million for the day care center to move. Sound insulation for the factory costs $1 million; insulation for the day care center costs $200,000. The court initially determines that the day care center has the property right. But, on appeal, the factory is awarded the property right. Which of the following is likely to be true given the scenario?
A)Insulation for the day care center would be bought, a result consistent with the Coase theorem.
B)Insulation for the factory would be bought, a result consistent with the Coase theorem.
C)Insulation for the day care center would be bought by the factory, a result consistent with the Coase theorem.
D)Insulation for the factory would be bought by the day care center, a result inconsistent with the Coase theorem.
E)The day care center would move instead of buying insulation, a result consistent with the Coase theorem.

Question

A metal-stamping factory moves next to a day care center. Noise from the factory makes it impossible for the kids to nap. It would cost the factory $5 million to move and $1 million for the day care center to move. Sound insulation for the factory costs $1 million; insulation for the day care center costs $200,000. The court initially determines that the day care center has the property right. But, on appeal, the factory is awarded the property right. Which of the following is likely to be true given the scenario?​
A)Insulation for the day care center would be bought, a result consistent with the Coase theorem.
B)Insulation for the factory would be bought, a result consistent with the Coase theorem.
C)Insulation for the day care center would be bought by the factory, a result consistent with the Coase theorem.
D)Insulation for the factory would be bought by the day care center, a result inconsistent with the Coase theorem.
E)The day care center would move instead of buying insulation, a result consistent with the Coase theorem.

Quizplus · Accepted Answer

The Answer of A metal-stamping factory moves next to a day care center. Noise from the factory makes it impossible for the kids to nap. It would cost the factory $5 million to move and $1 million for the day care center to move. Sound insulation for the factory costs $1 million; insulation for the day care center costs $200,000. The court initially determines that the day care center has the property right. But, on appeal, the factory is awarded the property right. Which of the following is likely to be true given the scenario?​
A)Insulation for the day care center would be bought, a result consistent with the Coase theorem.
B)Insulation for the factory would be bought, a result consistent with the Coase theorem.
C)Insulation for the day care center would be bought by the factory, a result consistent with the Coase theorem.
D)Insulation for the factory would be bought by the day care center, a result inconsistent with the Coase theorem.
E)The day care center would move instead of buying insulation, a result consistent with the Coase theorem.

A Metal-Stamping Factory Moves Next to a Day Care Center