o The small town of Kosethearum is home to a small shopping area where two individual oicm share one common wall between them. Located in one oice is Dr. Lisa Auzz, who regularly sees and treats patients throughout the day for migraines (very strong headaches). Dr. Am nds that her patients' ailments are exacerbated (made much worse) when they encounter loud sounds and/or bright lights. The ofce next door houses Mr. Bill Wonkuh, who uses large machines to make some of the most delicious candy in the world. Mr. Wonkuh nds it impossible to make any of his candy by hand, as the force required to pound his sigrature tay into shape can only be delivered via a large, solid-steel, hammering machine. The hammering machine creates a negative externality as it emits loud noises and bright, fantastical lights. 0 Before Mr. Wonkuh moved into the oice, Dr. Ann. was able to quietly treat her patients, earning a surplus of $100] day. Upon opening his candy factory, Mr. Wonkuh's noisy machines were able to earn him a surplus of Still/day. Unfortunately, the loud pounding sounds coming through the wall as a. result of the candy machines have made it almost impossible for Dr. Auzz to continue to treat her patients, resulting in a surplus of $10/day. _ Surplus with Candy Machine Surplus with No Candy Machine . Assigning Property Rights A problem exists in the town of Kosethearum, because no one is sure who has the right to operate their business at full capacity. Dr. Auzz and Mr. Wonkuh want to find a solution, but first they need to consult with the local magistrate, the Honourable Judge Judith, to get an impartial ruling on who holds this property right. Judge Judith wants to be sure that her ruling will lead to an efficient outcome. First, she considers what will happen if she assigns the property rights to Mr. Wonkuh, letting him know that he's free to produce as much light and sound from his candy making ventures as he wishes. 10. If Mr. Wonkuh holds the property rights, he can make candy, or he can bargain with Dr. Auzz who may be able to convince him to keep his machines off. What is the minimum amount that Dr. Auzz would have to offer to convince Mr. Wonkuh to not to operate his candy machine? $ 11. What is the maximum amount that Dr. Auzz would be willing to offer to convince Mr. Wonkuh to not to operate his candy machine? $. 12. It seems there would be some room for negotiation. Let's assume Dr. Auzz offers to pay Mr. Wonkuh $75/day to not operate his candy machine. What will be the outcome?: (choose one) (a) Mr. Wonkuh runs the candy machine (b) Mr. Wonkuh does not run the candy machine Now, Judge Judith considers what will happen if she assigns the property rights to Dr. Auzz, letting her know that she has the right to operate her business without interference from bright lights and loud sounds. 13. If Dr. Auzz holds the property rights, she can cure headaches in a distraction free environment, or Mr. Wonkuh can try to pay her enough to convince her to let him run his candy machine. What is the minimum amount that Mr. Wonkuh would have to offer to convince Dr. Auzz to let him operate his candy machine? $. 14. What is the maximum amount that Mr. Wonkuh would be willing to offer to convince Dr. Auzz to let him operate his candy machine? $. 15. Let's assume Mr. Wonkuh offers to pay Dr. Auzz $75/day to let him operate his candy machine. Will Dr. Auzz accept that arrangement? What will be the outcome?: (choose one) (a) Mr. Wonkuh runs the candy machine (b) Mr. Wonkuh does not run the candy machine
