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 ($) 100 200 1 350 2 700 1,050 1,400 1,750 2,100 400 4 700 1,100 1,600 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? 56

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 ($) 100 200 1 350 2 700 1,050 1,400 1,750 2,100 400 4 700 1,100 1,600 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? 56

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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