Economics Quiz 1
Based on the below case, Fill down all the data for the nine steps of the rational decision making relevant to the below mentioned case. Some steps may not be relevant to the below case, which can be described suitably. In the fall, Jay Thompson decided to live in a university dormitory. He signed a dorm contract under which he was obligated to pay the room rent for the full college year. One clause stated that if he moved out during the year, he could sell his dorm contract to another student who would move into the dormitory as his replacement. The dorm cost was $600 for the two semesters which Jay already has paid.
A month after he moved into the dorm, he decided he would prefer to live in an apartment. That week, after some searching for a replacement to fulfill his dorm contract, Jay had two offers. One student offered to move in immediately and to pay Jay $30 per month for the eight remaining months of the school year. A second student offered to move in the second semester and pay $190 to Jay. Jay now has $1050 left
(after paying the $600 dorm bill and food for a month) which must provide for all his room and board expenses for the balance of the year. He estimates his food cost per month is
$120 if he lives in the dorm and $100 if he lives in an apartment with three other students. His share of the apartment rent and utilities will be $80 per month. Assume each semester is 4.5 months long. Disregard the small differences in the timing of the disbursements or receipts.
Solution
1. Recognize problem; (0.5)
Jay Thompson is left with the fee he paid for the university dormitory, which is non-refundable
•
2. Define the goal or objective; (0.5)
Recover the paid deposit and minimize the lose
3. Assemble relevant data; (1)
• Jay paid = 600 (for accommodation for a year) +
120 (1 month food)
• Food cost for Jay 100/month if he stay in apartment • Food cost for jay 120/month, if he stay in dorm
• Apartment rent 80/month
• Offer 1: 30 per month for eight month
A month after he moved into the dorm, he decided he would prefer to live in an apartment. That week, after some searching for a replacement to fulfill his dorm contract, Jay had two offers. One student offered to move in immediately and to pay Jay $30 per month for the eight remaining months of the school year. A second student offered to move in the second semester and pay $190 to Jay. Jay now has $1050 left
(after paying the $600 dorm bill and food for a month) which must provide for all his room and board expenses for the balance of the year. He estimates his food cost per month is
$120 if he lives in the dorm and $100 if he lives in an apartment with three other students. His share of the apartment rent and utilities will be $80 per month. Assume each semester is 4.5 months long. Disregard the small differences in the timing of the disbursements or receipts.
Solution
1. Recognize problem; (0.5)
Jay Thompson is left with the fee he paid for the university dormitory, which is non-refundable
•
2. Define the goal or objective; (0.5)
Recover the paid deposit and minimize the lose
3. Assemble relevant data; (1)
• Jay paid = 600 (for accommodation for a year) +
120 (1 month food)
• Food cost for Jay 100/month if he stay in apartment • Food cost for jay 120/month, if he stay in dorm
• Apartment rent 80/month
• Offer 1: 30 per month for eight month