Consider a situation in which a dance studio is next to a spa. Noise from the dance studio disrupts the spa's business, to the tune of $1000 of lost revenue. The noise could be prevented if the studio installed noise cancelling panels at a cost of $1200. The spa is new to town, while the dance studio has been in operation for 20 years at the location. 7. The socially desirable result is: The spa should close. The dance studio should install panels. The spa should just endure the lost business. The dance studio should pay damages to the spa. 8. The spa sues the studio, and wins the court case the judge decides the studio has the right to make noise. According to Coase, what will happen next, provided bargaining is cheap? The dance studio will pay the spa some amount and continue making noise. The dance studio will have to install panels. The spa will pay the studio to install panels. O The dance studio will close.
