A railroad can operate zero, one, or two trains a day along a certain stretch of track that borders a farmer’s field, but the trains occasionally emit sparks that set fire to the crops. The following table shows the railroad’s total profit and the farmer’s total fire damage (both in dollars) as functions of the number of trains. (Please show step by step on the math) No of trains RR's profit Farmer's fire damage 0 0 0 1 150 100 2 200 125 A. What is the socially optimal number of trains? B. Assume bargaining costs between the railroad and farmer are zero. Describe the outcome when: i. The railroad has the right to operate any number of trains, protected by a property rule. ii. The farmer has the right to be free from crop damage, protected by a property rule. C. Assume bargaining costs between the railroad and the farmer are high. Describe the outcome when: i. The railroad has the right to operate any number of trains, protected by a liability rule. ii. The farmer has the right to be free from crop damage, protected by a liability rule.
A railroad can operate zero, one, or two trains a day along a certain stretch of track that borders a farmer’s field, but the trains occasionally emit sparks that set fire to the crops. The following table shows the railroad’s total profit and the farmer’s total fire damage (both in dollars) as functions of the number of trains. (Please show step by step on the math)
| No of trains | RR's profit | Farmer's fire damage |
| 0 | 0 | 0 |
| 1 | 150 | 100 |
| 2 | 200 | 125 |
A. What is the socially optimal number of trains?
B. Assume bargaining costs between the railroad and farmer are zero. Describe the outcome when:
i. The railroad has the right to operate any number of trains, protected by a property rule.
ii. The farmer has the right to be free from crop damage, protected by a property rule.
C. Assume bargaining costs between the railroad and the farmer are high. Describe the outcome when:
i. The railroad has the right to operate any number of trains, protected by a liability rule.
ii. The farmer has the right to be free from crop damage, protected by a liability rule.
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