This one is pretty simple Your neighbors are considering get

This one is pretty simple.

Your neighbors are considering getting either a large dog or a small dog. They do not take good care of animals, and you will be affected by both the smell of the dog and its barking. The gains and damages in dollar-equivalent terms are listed in the table: If there are no restrictions on dog ownership and negotiation is costless, what kind of dog will your neighbor get Explain. If there are negotiation costs of $10 per month, which kind of dog will your neighbor get Explain. Now, suppose you can move to a new location, and the cost of this will be $120 a month. With no negotiation costs, how will your answer in part (a) change Explain.

Solution

a) Large dog as he will not be bothered for damage to neighbour. He will be concerned about his own gains.

b) If there are negotiation cost of $10 per month, then he will buy small dog as the total utility will be maximum with small dog. (200-125=75) (120-40 = 80)

c) He will go for large dog, as with shift in location, large dog is giving more benefit to the owner.