There is a bar on Off‐Main Street called the Rock‐n‐Roll Bar. All the people that go to that bar like to listen to rock‐n‐roll music, and they love live bands. If the bar owner brings bands in to play music on a Saturday night, she will make a lot of money. However there are tenants in this building who get annoyed by the loud music. The benefits/costs to the owner/tenants of having zero, one, two or three bands on a Saturday night are listed below.
Assume the bar owner has the right to hire as many bands as she likes. If
transaction costs were $90, split between the bar owner and the tenants, how many
bands would play? What would social welfare be?
A. Three bands would play and social welfare would be ‐100.
B. Two bands would play and social welfare would be 75.
C. Two bands would play and social welfare would be ‐15.
D. No bands would play and social welfare would be 0.
E. Three bands would play and social welfare would be ‐190
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