Economics Quiz 1

Topics: Academic term, Dormitory, Hostel Pages: 8 (533 words) Published: May 14, 2015
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
• Offer 2: 190 in total but move in for Second
Semester only

4. Identify feasible alternatives; (1)
• Offer 1: 30 per month for eight month (YES)
• Offer 2: 190 in total but move in for Second
Semester only (YES)
• Do nothing and stay in the dorms (No)

5. Select the criterion to determine the best
alternative ;(1)
 
• The total cost to Thomson is the criterion
6. Construct a model; (2)
Min (Total Cost to Thomson) and Max (Total
income to Thomson)

7. Predict each alternative's outcomes or
consequences; (3)





If Jay decided to move to apartment
Income to Thomson
Offer 1:= 8*30 = 240
Offer 2:= 190






Expenses to Thomson
Food savings : 20* 8 = 160
Cost of accommodation = 80 *8 = 640  
Total cost = 640-160 = 800

8. Choose the best alternative; and (0.5) 
• If he is moving to apartment
 Offer 1 gives more income than the Offer 2

9. Audit the result. (0.5)
 
• By Auditing the results, it is advisable to stay
in the dorm itself

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