Bob and Ray Are Thinking of Buying a Sofa

question 21

Multiple Choice

Bob and Ray are thinking of buying a sofa. Bob's utility function is U_B(S, M_B) = (1 + S) M_B and Ray's utility function is U_R(S, M_R) = (3 + S) M_R, where S = 0 if they don't get the sofa and S = 1 if they do and where M_B and M_R are the amounts of money they have respectively to spend on their private consumptions. Bob has a total of $2,000 to spend on the sofa and other stuff. Ray has a total of $2,400 to spend on the sofa and other stuff. The maximum amount that they could pay for the sofa and still arrange to both be better off than without it is

• A) $2,400.
• B) $800.
• C) $1,600.
• D) $850.
• E) $3,200.

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Definitions:

Post Hoc

The fallacy of using the fact that one event preceded another as sufficient evidence for the conclusion that the first caused the second.

Fallacy

An incorrect reasoning technique that spoils the legitimacy of an argument.

Chewing Gum

A soft, cohesive substance designed to be chewed without being swallowed, often used to freshen breath or for enjoyment.

Arm Sore

A physical condition often resulting from excessive use or exertion of the arm muscles, leading to discomfort or pain.