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Consider a commercial space with two tenants. An upscale restaurant and a live music wvenue, Currently, the restaurant is open serving customers until 10pm each
Consider a commercial space with two tenants. An upscale restaurant and a live music wvenue, Currently, the restaurant is open serving customers until 10pm each night and the venue has music beginning at pm each night. The live music causes a disturbance at the restaurant harming the restaurant owner's profit, so the owner demands the music venue does not begin operating untl 10pm. The venue owner counters that the restaurant should just close an hour early, at $pm. The following are the hourly profits both firms will earn depending on various closing times. + Scenario A: Both businesses are open between $pm and 10pm: The restaurant earns $400 in profit and the venue earns $400 in profit between $pm and 10pm. Scenario B: The venue does not open until 10pm: The restaurant would sarn $1200 in profit between pm and 10pm, the venue earns no profit since it is closed during that time. Scenario C: The restaurant closes at 9pm: The restaurant earns no profits between $pm and 10pm. The venues profit are not impacted by the restaurant, they still earn $500 profit in this scenario. Assume no transaction costs. a) Between the three scenarios, the efficient outcome is Scenario | Select | * | and the most inefficient outcome is Scenario | Select | w b) Suppose the restaurant has the property rights, meaning if the restaurant loses profit due to the venue, the venue must pay the amount of the restaurant's lost profit. After any and all negotiations, does the Coase Theorem predict the venue will open at pm or 10pm? | Select | L c) Suppose the venue has the property rights, menaing the venue is not responsible for any profit lost by the restaurant. After any and all negotiations, does the Coase Theorem predict the venue will open at pm or 10pm? [ Select | w d) Should, in any scenario, the restaurant pay the venue to stay closed until 10pm, what range of values represent an improvement to both tenants compared to the status quo? | Select | w
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