The Hokey Pokey, a children's day care center is thinking about changing the nature of its business. It is considering shutting down the day care center, and re-opening their business as an adult night club called the Hanky Panky. The Hokey Pokey currently makes $500 in profits. However, re-opening as the Hanky Panky will increase their profits from $500 to $1500. Friendly's Ice Cream which is currently located next to the Hokey Pokey is concerned because this move would reduce its profits by $1200. This would occur because they lose many of the families who currently come to the restaurant (some of which have their kids in the day care center.) but very few adult night club patrons are looking for ice cream According to economic theory, will the efficient outcome still likely occur, if there were many more surrounding stores with similar objections to the Hanky Panky? A) Yes, because the Coase Theorem will still apply as parties will bargain to the efficient outcome B) Yes, because individuals will start to consider the public interest. C) No, because self interest always leads to inefficient outcomes D) No, because the Coase Theorem will not apply as there will be bargaining costs due to the holdout problem.
The Hokey Pokey, a children's day care center is thinking about changing the nature of its business. It is considering shutting down the day care center, and re-opening their business as an adult night club called the Hanky Panky. The Hokey Pokey currently makes $500 in profits. However, re-opening as the Hanky Panky will increase their profits from $500 to $1500. Friendly's Ice Cream which is currently located next to the Hokey Pokey is concerned because this move would reduce its profits by $1200. This would occur because they lose many of the families who currently come to the restaurant (some of which have their kids in the day care center.) but very few adult night club patrons are looking for ice cream
According to economic theory, will the efficient outcome still likely occur, if there were many more surrounding stores with similar objections to the Hanky Panky?
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