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What is the economic problem in this case

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Reference no: EM132405041

In the famous case of Liebeck vs MacDonald's Stella Liebeck purchased a cup of coffee through the drive-in window at MacDonald's, spilling the contents in her lap. She suffered third degree burns and sued for damages. After Macdonald's rejected her initial offer of $20,000, the case went to trial. The jury awaded $160,000 in medical costs and $460 in punitive damages.

a. What is the economic problem in this case? Explain.

b. What kinds of precaution could be taken by each party? That is, what is in the opportunity set?

c. Explain the Hand rule in the context of this case. Give a specific example of a precaution and why it might or might not satisfy the Hand rule for negligence.

d. Explain the Coase theorem in the context of this case.

Reference no: EM132405041

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