They Are Thinking of Buying a Sofa

question 13

Multiple Choice

They 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) = (2 + 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 $3,000 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)$3,000.
• B)$1,500.
• C)$2,000.
• D)$1,050.
• E)$4,000.

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Definitions:

Satisfaction

The fulfillment of a need or desire; in a legal context, the discharge of an obligation or debt.

Portrait

A portrait refers to a painting, drawing, photograph, or engraving of a person, especially one depicting only the face or head and shoulders.

Contract Price

The total financial amount agreed upon by the parties involved in a contract for the provision of goods or services.

Accord And Satisfaction

A legal agreement where a dispute is settled by one party providing something of value, which is then accepted by the other party as satisfactory resolution.