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22 August, 22:20

Suppose that a mechanic owns a building and is renting part of the building's space to a spa. Further suppose that because the mechanic is the owner, he has the right to make noise during the day while he fixes cars. While the spa cannot insist on a quiet environment, it could move to a quieter building. However, rent in the next best building is $350/month more than rent in the noisy building. The mechanic can adopt a new technology that eliminates the noise for $275/month. Given this situation, can the spa find a private solution with the mechanic that will make both better off

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  1. 23 August, 01:18
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    The correct answer is letter "B": Yes, but there is only a range of payments that the spa will pay the mechanic to make them both better off.

    Explanation:

    The spa must analyze the benefit-cost of the possible solution for the noise problem. A spa itself cannot provide a noisy atmosphere to its clients. Moving the spa to the next best building implies spending $350 monthly more for rent. However, the mechanic can eliminate the noise with a device that costs $275 per month. Thus, the spa should share the expenses with the mechanic for the noise-elimination device to reduce the costs of having a noise-free environment obtaining the benefit desired.
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