Latoya and Maggie are roommates. Maggie likes to play music in their dorm room every evening. Tonight, Latoya needs to study for her economics exam and would prefer that Maggie not play music. Latoya values silence at $50. Maggie values her music at $20. Assume the roommates can bargain with zero transactions costs. If the dorm rules are such that Maggie is allowed to play music whenever she likes, which of the following is true?
A) Maggie could offer to pay Latoya $20 in exchange for playing her music, an offer that Latoya would accept.
B) Maggie will not be able to offer any amount high enough to convince Latoya to allow music.
C) Maggie and Latoya will not be able to reach an agreement that results in Maggie turning off her music for the evening.
D) Latoya could offer to pay Maggie $25 in exchange for Maggie turning off her music, an offer that Maggie would accept.
Correct Answer:
Verified
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