5. John is considering opening a bar on the ground floor of a building. Residents of the lower floors of the building su

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5 John Is Considering Opening A Bar On The Ground Floor Of A Building Residents Of The Lower Floors Of The Building Su 1 (83.38 KiB) Viewed 32 times

5. John is considering opening a bar on the ground floor of a building. Residents of the lower floors of the building suffer externalities due to noise of $12000 as they are close to the bar. Residents of the upper floors of the building enjoy positive externalities of $5000 as they have a new bar which is very close by. John expects to make a profit of $11000. (a) is opening the restaurant efficientę [3 marks] (b) Residents of the lower floors can move to different buildings. Suppose this costs them $20000. Is it efficient for them to move? [3 marks] (c) Suppose that the restaurant can install sound-proofing which costs $10000 to do so. Is it socially efficient for the restaurant to sound-proof itself [3 marks] (d) According to whom, if there are no transaction costs and parties are free to bargain, then the efficient solution should take place. [3 marks] (e) Suppose that property rights are with John. What is the efficient solution? Who pays for the efficient solution [3 marks] (1) Who is the least-cost avoiderTherefore, who should have the property rights to minimize transaction costs? [4 marks]