A farmer’s fields are right next to the train tracks, where sparks from the trains set the field on fire. The railroad profit from running zero, one, two or three trains is shown below. The columns indicate the number of trains running. Total railroad profits are the total profits to the railroad from running the specified number of trains. Total lost farmer profits are total profits the farmer loses from a specified number of trains running. Trains 0 1 2 3 Total Railroad Profit. $200 $300 $350 $410 Total Lost Profit for Farmer $0 $100 $125 $300 1) What is social welfare at the socially optimal number of trains? a) 200 b) 225 c) 210 d) 350 e) 410 2) How many trains will run if the railroad is granted a property right throw sparks? a) 0 c) 2 e) Depends on b) 1 d) 3 transaction costs 3) How many trains will run if the farmer is granted a property right to be free of sparks and there are no transaction costs? a) 0 b) 1 c) 2 d) 3 e) Not enough information 4) How many trains will run if the farmer is granted a liability right to be free of sparks and there are no transaction costs or litigation costs? a)0 c) 2 e) Not enough b) 1 d) 3 information
A farmer’s fields are right next to the train tracks, where sparks from the trains set the field on fire. The railroad profit from running zero, one, two or three trains is shown below. The columns indicate the number of trains running. Total railroad profits are the total profits to the railroad from running the specified number of trains. Total lost farmer profits are total profits the farmer loses from a specified number of trains running.
Trains
0 1 2 3
Total Railroad Profit. $200 $300 $350 $410
Total Lost Profit for Farmer $0 $100 $125 $300
1) What is social welfare at the socially optimal number of trains?
a) 200 b) 225 c) 210 d) 350 e) 410
2) How many trains will run if the railroad is granted a property right throw sparks?
a) 0 c) 2 e) Depends on
b) 1 d) 3 transaction costs
3) How many trains will run if the farmer is granted a property right to be free of sparks and there are no transaction costs?
a) 0 b) 1 c) 2 d) 3 e) Not enough information
4) How many trains will run if the farmer is granted a liability right to be free of sparks and there are no transaction costs or litigation costs?
a)0 c) 2 e) Not enough
b) 1 d) 3 information
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