Curly and Moe Are Considering Living Alone or Being Roommates

question 113

Multiple Choice

Curly and Moe are considering living alone or being roommates and splitting the rent for the next twelve months.If they live alone,they each rent a one bedroom,one bath apartment for $500 per month,while if they are roommates,they can split a two bedroom,one bath apartment for $800 per month.The one difficulty they have is that Moe snores very loudly.Curly estimates the cost of poor sleep due to Moe's snoring at $150 per month.Moe could obtain a snore-eliminating device for $50 per month.
Refer to the information given above.Curly and Moe have both taken an economics course and so are willing to apply the Coase Theorem and negotiate.Who will compensate the other?

• A)Neither Moe nor Curly has the initial property right,and so neither will compensate the other.
• B)Moe must compensate Curly because Moe is the one who is snoring.
• C)Curly must compensate Moe because Curly is the one who is bothered by the snoring.
• D)Either Moe will compensate Curly or Curly will compensate Moe because the alternative,renting separate apartments,leaves each worse off.

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Definitions:

Price

The amount of money or consideration exchanged for the ownership or use of a good or service.

Business

An organization or enterprising entity engaged in commercial, industrial, or professional activities, often structured to produce and sell goods and services for profit.

Present Value

Present value represents the current value of a future amount of money or series of cash flows, discounted at a certain rate of return.

Discount Rate

In finance, the rate used to discount future cash flows to their present value, essentially reflecting the time value of money and risk.