8. Ringo loves playing rock-’n’-roll music at high volume. Luciano loves opera and hates rock-’n’-

roll. Unfortunately, they are next-door neighbors in an apartment building with paper-thin walls.

a. What is the externality here?

b. What command-and-control policy might the landlord impose? Could such a policy lead to an inefficient outcome?

c. Suppose the landlord lets the tenants do whatever they want. According to the Coase 9. The Pristine River has two polluting firms on its banks. Acme Industrial and Creative Chemicals each dump 100 tons of glop into the river each year. The cost of reducing glop emissions per ton equals $10 for Acme and $100 for Creative.

The local government wants to reduce overall pollution from 200 tons to 50 tons.

a. If the government knows the cost of reduction for each firm, what reductions will it impose to reach its overall goal? What will be the cost to each firm and the total cost to the firms together?

b. In a more typical situation, the government does not know the cost of pollution reduction for each firm. If the government decides to reach its overall goal by imposing uniform reductions on the firms, calculate the reduction made by each firm, the cost to each firm, and the total cost to the firms together.

c. Compare the total cost of pollution reduction in parts

(a) and (b). If the government does not know the cost of reduction for each firm, is there still some way for it to reduce pollution to 50 tons at the total cost you calculated in part (a)? Explain.