A train track runs through a rancher's land. Each time a train runs on the track, it causes one of the rancher's cows to run away, resulting in a loss of $200 to the rancher. The following table gives the train operator's total revenue and costs per number of trains she runs through the land. Trains run Operator revenue ($) Operator costs ($) 1 350 100 700 200 3 1,050 1,400 1,750 2,100 400 4 700 1,100 1,600
A train track runs through a rancher's land. Each time a train runs on the track, it causes one of the rancher's cows to run away, resulting in a loss of $200 to the rancher. The following table gives the train operator's total revenue and costs per number of trains she runs through the land. Trains run Operator revenue ($) Operator costs ($) 1 350 100 700 200 3 1,050 1,400 1,750 2,100 400 4 700 1,100 1,600
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:A train track runs through a rancher's land. Each time a train runs on the track, it causes one of the
rancher's cows to run away, resulting in a loss of $200 to the rancher. The following table gives the
train operator's total revenue and costs per number of trains she runs through the land.
Trains run Operator revenue ($) Operator costs
1
350
100
700
200
3
1,050
1,400
400
4
700
1,750
2,100
1,100
1,600
5
6
PART A: What is the socially optimal number of trains run?
PART B: Now suppose that the train operator has property rights. Assuming no negotiation is
possible, how many trains will she choose to run?
PART C: Now suppose that the operator and the rancher can negotiate (and that negotiation is
costless). What is the least the operator would accept to run the socially optimal number of trains
from part A? What is the most the rancher would offer?
PART D: Finally, suppose that in order to negotiate the operator and rancher must hire a lawyer.
The lawyer's fees are $300. Will they still negotiate? Why or why not?
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