Kate and Ali can live together a two-bedroom apartment for $600 per month, or they can each rent a one-bedroom apartment for $400 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's taste in music. Kate would be willing to pay up to $100 a month to avoid hearing Ali's music. Ali would give up listening to her music for no less than $300 per month. Which, if any, of the following ways of splitting the total monthly rent would induce them to live together?
A)Kate pays $150 per month and Ali pays $450 per month
B)Kate pays $250 per month and Ali pays $350 per month
C)Kate pays $375 per month and Ali pays $125 per month
D)There is no way to split the rent to induce them to live together

Question

Quizplus · Accepted Answer

Kate would be willing to pay up to $100 to avoid Ali's music, making her effective cost $500 ($400 + $100) if they live apart. Ali would need at least $300 to stop playing her music, making her effective cost $700 ($400 + $300) if they live apart. If they live together and split the rent as in option B, Kate pays $250 and Ali pays $350, totaling $600, which is less than their effective costs of living apart.

Kate and Ali Can Live Together a Two-Bedroom Apartment for $600