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 bargaining between Sarah and Gilbert requires an enforceable contract to be drawn up at a cost of $1,500, how many sculptures will Sarah make? Explain how you arrived at your answer.
b. Is the outcome in part a an outcome that the benevolent social planner would endorse? Why or why not?