A Metal-Stamping Factory Moves Next to a Day Care Center

question 23

Multiple Choice

A metal-stamping factory moves next to a day care center.Noise from the factory makes it impossible for the kids to nap.It would cost the factory $5 million to move,and it would cost the day care center $1 million to move.Sound insulation for the factory costs $1 million,while insulation for the day care center costs $200,000.The court initially determines that the day care center has the property right.But,on appeal,the factory is awarded the property right.Which of the following is likely to be true according to the Coase theorem?

• A)The day care center would buy the insulation, a result consistent with the Coase theorem.
• B)The factory would buy the insulation, a result consistent with the Coase theorem.
• C)The factory would buy the insulation for the day care center, a result consistent with the Coase theorem.
• D)The day care center would buy the insulation for the factory, a result inconsistent with the Coase theorem.
• E)The day care center would move instead of buying insulation, a result consistent with the Coase theorem.

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Definitions:

Obligation

A legal or moral duty to do something or pay an amount to someone.

Compounded Monthly

Interest calculation method where the interest is added to the principal at the end of each month, resulting in "interest on interest".

Interest

The cost of borrowing money, typically expressed as an annual percentage rate.

Scheduled Payments

Predetermined amounts paid at regular intervals as part of a loan agreement or payment plan.