(5 points) Smith and Jones are trying to decide whether to share a two bedroom a

Question

(5 points) Smith and Jones are trying to decide whether to share a two bedroom apartment or to live separately in one bedroom apartments. The rental fees are $300 per month for single bedrooms, and $420 per month for doubles. Smith is a smoker and would be willing to give up $250 per month rather than give up being able to smoke at home. Jones, however, is a nonsmoker and would sacrifice $150 per month rather than live with a smoker. Apart from the issues of smoking and rent, the two find joint living neither more nor less attractive than living alone. Neither has an alternative roommate available. Will they live together or separately? If together, what is the social surplus? If they live together, what is the maximum amount Jones is willing to pay in monthly rent? If they agree to split any economic surplus equally, what will each pay in rent? 

Explanation / Answer

smith and jones are two persons ..smith is a smoker and jones is non smoker.. the apartment rent for singles is 300$ and for doubles 420$ ... nw smith can pay 250$ and jones 150$.. so they will live together and max amount of jones that is willing to pay is 262$ ..and if they split economic surplus equally then each will be pay 210@ ... hence concluded..

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