There is a bar on Off‐Main Street called the Rock‐n‐Roll Bar. All the people that go to that bar like to listen to rock‐n‐roll music, and they love live bands. If the bar owner brings bands in to play music on a Saturday night, she will make a lot of money. However there are tenants in this building who get annoyed by the loud music. The benefits/costs to the owner/tenants of having zero, one, two or three bands on a Saturday night are listed in the attached table.
Assume the tenants have the right to be free of loud music enforced through a property rule. If transaction costs were $90, split between the bar owner and the tenants, how many bands would play? What would social welfare be?
A) Two bands would play and social welfare would be 75.
B) Two bands would play and social welfare would be ‐25.
C) No bands would play and social welfare would be zero.
D) No bands would play and social welfare would be ‐90.
E) One band would play and social welfare would be 25.
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