A homeowner will be away from her house for six months. The monthly mortgage payment on the house is $300. The utilities, to be paid by the owner, cost $100 per month if the house is occupied; otherwise zero. If the owner wishes to minimize her losses from the house, she should rent the house for as much as the market will bear, as long as monthly rent is greater than which of the following? (Assume wear and tear to be zero regardless of whether the house is occupied.) (Hint: Remember the concept of sunk cost.)

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The owner is already sunk $400 ($300 mortgage payment + $100 utilities) for each month the house is vacant. Therefore, the minimum rent should cover this cost. Any rent above $400 would minimize the owner's losses from the house. However, since the owner wants to minimize her losses, she should rent the house for at least $400. If she rents for less than that amount, she will be losing more money than if she just left the house vacant. The utilities will still need to be paid, so the only way to minimize losses is to rent for at least $400. Choice B is the only option greater than $400.

A Homeowner Will Be Away from Her House for Six