The Coase theorem says that private individuals can negotiate efficient bargains as long as they hav… Show more The Coase theorem says that private individuals can negotiate efficient bargains as long as they have property rights. Consider the following situation: Landlord A owns a nine floor apartment building in a large city. Landlord A put solar panels on the roof to generate electricity. The panels give Landlord A some extra profit each month. Landlord B owns vacant land next door and plans to build another apartment building. B’s proposed building will be taller than A’s building and will shade the solar collector. This will reduce A’s profits. A asks B to build a smaller building that wouldn’t shade his collector but B says that if he built a smaller building his profits would be smaller. If Landlord A had a property right to sunlight then it would be illegal for B to block the sun without A’s consent. B would have to bargain with A about the new building. Complete the table below. FLOORS IN B’S BUILDING A’s total profit a’ marginal profit B’S TOTAL PROFIT B’s Marginal profit 9 18000 18000 10 17000 20000 11 14000 22000 12 10000 24000 b. If A and B bargain over the size of the building what number of floors should B build? How much should B compensate A? Explain fully. • Show less