Sarah Makes Giant Wind Chime Sculptures for a Living

Essay

Sarah makes giant wind chime sculptures for a living. When she makes 4 sculptures, she earns $10,000. When the makes 5 sculptures, she earns $12,500. Next door, Gilbert runs a meditation clinic. When Sarah makes 4 giant wind chime sculptures, the noise from the sculptures does not disrupt his patients, and he earns $7,500. When Sarah makes 5 sculptures, the noise is disruptive and Gilbert's profits fall to $6,000. The city has an ordinance which prohibits noise that disrupts the community.
a. If you were the benevolent social planner, would you like to see Sarah make 4 sculptures or 5? Why?
b. If bargaining between Sarah and Gilbert is easy, how many sculptures will Sarah make? Describe the bargain that results, if any, including the amount of money that changes hands.
c. Is the outcome in part b an outcome that the benevolent social planner would endorse? Why or why not?