Suppose That Your Roommate Is Very Untidy

question 180

Multiple Choice

Suppose that your roommate is very untidy. Suppose she/he gets a $100 benefit from being messy but imposes a $200 cost on you. (Assume that there are no regulations against untidiness in your living quarters.) The Coase Theorem would suggest that an efficient solution can be reached where:

• A)​you pay your roommate at least $100 but no more than $200 to clean up after her/himself
• B)​you pay your roommate at least $201 to clean up after her/himself.
• C)​you continue to live with your untidy roommate until you are able to make other living arrangements elsewhere.
• D)​your roommate pays you at least $100 to have you clean up after her/him.

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Definitions:

Profitability Index

A ratio that calculates the relative profitability of an investment by dividing the present value of future expected cash flows by the initial investment cost.

Initial Investment

The amount of money used to start a project, investment, or business.

Cash Inflows

Funds entering a business from various sources, including sales, investments, and financing activities, critical for maintaining liquidity.

Payback Period

The time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment.