8. A physician and a confectioner are located in adjacent storefront offices. As part of his process for making candy, the confectioner uses a large blender that is very noisy and prevents the physician from effectively consulting with patients. (The blender is so loud that the physician cannot hear through her stethoscope when the blender is being used.) So, in the current situa- tion, the physician's value of production is 0, and the confectioner's value of production is 400. If the confectioner does not operate, he earns 0 but the physician earns 2000. Exercises (a) Suppose that the confectioner has the legal right to operate his blender but that the parties are free to contract and have good external enforce- ment. Use the standard bargaining solution to predict the outcome under the assumption that the parties have equal bargaining weights. (b) Suppose that it is illegal for the confectioner to operate his blender without permission from the physician, but, again, the parties can freely contract and have good external enforcement. What would the outcome be in this case? Assume equal bargaining weights as before. (c) Suppose that the legal default is that the physician has the right to recover damages of z if the confectioner uses his blender. Determine what would happen if the parties do not contract, and note how this depends on z. Finally, describe the final payoffs, and whether the parties contract, as a function of z. Apply the standard bargaining solution with equal bargaining weights. Do question 8 of text on pp. 242-243 with the following modification. The confectioner can buy a less noisy blender that costs $100. With this, the physician gets a production value of $1,800 without shutting down the confectioner. Use the following notation to derive the outcome: Let Player 1 be the physician and Player 2 be the confectioner. Let x {0,1} represent the set of outcomes for the confectioner operating. x = 0 represents the outcome where the confectioner does not operate while x = 1 is the outcome where the confectioner operates. Let y {0,1} represent the set of outcomes for the confectioner buying the less noisy blender. y = 0 represents the outcome where the confectioner does not buy it while x = 1 is the outcome where the confectioner buys the new blender. t represents the payment made by the physician to the confectioner. If payments are in reverse, i.e. the confectioner pays the physician, t
