References Mailings Review View Help Assume a cattle producer and a farmer live adjacent to each other and the cattle producer's cattle damage the crops of the farmer. Assume the Marginal Net Benefit function for the rancher when he runs cattle can be expressed as Equation 1: (1) MNBR = 240 - 6C Where marginal net benefit rancher (MNBR) is measured in dollars and C is the number of head the rancher runs. Recall that MNBR = MB - MC. Assume the marginal damage imposed on the farmer (MDF) when the rancher runs cattle can be expressed as Equation 2. (2) MDF = 2C Where marginal damage (MDF) is measured in dollars and C is the number of cattle, Questions: 1. 2. 3. 4. 5. 6. Under a zero-liability rule (rancher is not responsible for damages) how many head of cattle does the rancher run? (Before any negotiations!) Show work. (2 points) Under a full liability rule (the rancher is legally prohibited from imposing any damages on the farmer) how many head of cattle does the rancher run? (Before any negotiations!) Show work. (2 points) Now assume a zero-liability rule but allow the rancher and farmer to negotiate. (1) What is the optimal number of cattle? (2) Who pays the cost of compensation? (3) What is the per head compensation price? (4) What is the total amount of the compensation payment? (5) What is the net gain of negotiation to each (to the farmer and to the rancher? Show all work and graphically identify areas. (10 points) Now assume a full liability rule but allow the rancher and farmer to negotiate. (1) What is the optimal number of cattle? (2) Who pays the cost of compensation? (3) What is the per head compensation price? (4) What is the amount of the compensation payment? (5) What is the net gain of negotiation to each? Show all work and graphically identify areas. (10 points) Assume a strong fence could be built for an annual cost of $2,000 and that the fence will keep the cattle out of the farmer's fields. Would this impact your answer to question 3? Would this impact your answer to question 4? Fully explain your answer. (3 points) Assume a strong fence could be built for an annual cost of $1,000 and that the fence will keep the cattle out of the farmer's fields. Would this impact your answer to question 3? Would this impact your answer to question 4? Fully explain your answer. (3 points) 7. Assume a strong fence could be built for an annual cost of $500 and that the fence will keep the cattle out of the farmer's fields. Would this impact your answer to question 3? Would this impact your answer to question 4? Fully explain your answer. (3 points) Search GK W