Suppose the problem is the stereo noise in the dorm. On the graph on the next page the amplifier dial numbers are located on the horizontal axis. The vertical axis measures the marginal costs and benefits of various levels of music (noise). Also measured on the vertical axis is the marginal cost of insulating the walls to prevent the externalities from penetrating the wall. 
What if negotiation is impossible and you have the rights to play?
A. You will play at 6 and she will suffer through the listening of your playing.
B. You will play at 10 and insulate your walls.
C. You will play at 3 and she will listen to the music that comes into her apartment.
D. She will insulate her walls and you will play at 10.
Answer: D
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