Erick and Sandile Live in a University Hall of Residence

question 16

Multiple Choice

Erick and Sandile live in a university hall of residence. Erick values playing loud music at R100. Sandile values peace and quiet at R150. Which of the following statements is true about an efficient solution to this externality problem if Erick has the right to play loud music and if there are no transaction costs?

• A) Sandile will pay Erick between R100 and R150 and Erick will continue to play loud music.
• B) Erick will pay Sandile R150 and Erick will continue to play loud music.
• C) Sandile will pay Erick between R100 and R150 and Erick will stop playing loud music.
• D) Erick will pay Sandile R100 and Erick will stop playing loud music.

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Definitions:

Profit Centers

Divisions or segments within a company that are directly responsible for generating profits, evaluated based on their performance.

Net Income

The remaining profit after deducting all expenses, taxes, and costs from the total revenue.

Service Department Cost

Expenses associated with the functions that support the production or selling activities of a business, such as maintenance, cleaning, and security services.

Macro Division

A segment within a company or industry that focuses on the broad, overall management and strategies rather than individual components or products.