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Category: Homework
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Experience:  Post Graduate Diploma in Management (MBA)
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# Can you please assist me with this problem. I have to turn

### Resolved Question:

Can you please assist me with this problem. I have to turn this back in before midnight. Still cant figure this out. This question has been posted for 6 days. Coase Farm grows soybeans near property owned by Taggart Railroad. Taggart can build zero, one, or two railroad tracks adjacent to Coase Farm, yielding a net present value of \$0, \$9 million, or \$12 million.

(in millions)

as a Function of the

Number of Train Tracks

(before any damages)

Zero tracks \$0

One tracks 9

Two tracks 12

Coase Farm can grow soybeans on zero, one or two fields, yielding a net present value of \$0, \$15 million, or \$18 million before any environmental damages inflicted by Taggart trains. Evironmental damages inflicted by Taggart's trains are \$4 million per field per track. Coase Farm's payoffs as a funciton of the number of fields it uses to grow soybeans and the number of tracks that Taggart builds are shown below.

Value of Coase Farm

(in millions)

as a Function of the

Number of Fields Planted

and the Number of Train Tracks

Zero fields One field Two field

Zero tracks \$0 \$15 \$18

One tracks 0 11 10

Two tracks 0 7 2

It is prohibitively expensive for Taggart Railroad and Coase Farm to enter into a long-term contract regarding either party's use of its land.

Required:

a. Suppose Taggart Railroad cannot be held liable for the damages its tracks inflict on Coase Farm. Show that Taggart Railroad will build two tracks and Coase Farm will plant soybeans on one field.

b. Suppose Taggart Railroad can be held fully liable for the damages that its tracks inflict on Coase Farm. Show the Taggart Railroad will build one track and Coase Farm will plant soybeans on two fields.

c. Now suppose Taggart Railroad and Coase Farm merge. Show that the merged firm will build one track and plant soybeans on one field.

d. what are the implications of the merger for the organizational architecture of the newly merged firm in terms of decision rights, performance measurement, and employee compensation?

Submitted: 6 years ago.
Category: Homework
Customer: replied 6 years ago.
Relist: I still need help.
Expert:  Linda_us replied 6 years ago.

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Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
Satisfied Customers: 7291
Experience: Post Graduate Diploma in Management (MBA)

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