# 3. John and Karl can live together in a two-bedroom apart-ment for \$500 per month, or each can rent a single-bedroom apartment for \$350 per month. Aside from therent, the two would be indifferent between living togetherand living separately, except for one problem: John leaves dirty dishes in the sink every night. Karl wouldbe willing to pay up to \$175 per month to avoid John'sdirty dishes. John, for his part, would be willing to payup to \$225 to be able to continue his sloppiness. (LO2)a. Should John and Karl live together? If they do, willthere be dirty dishes in the sink? Explain.b.What if John would be willing to pay up to \$30 permonth to avoid giving up his privacy by sharingquarters with Karl? Should John and Karl livetogether?

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3a and 3b

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Step 1

It is given that person J and person K can live together by paying \$500 which means that they have to pay \$250 each for liing together in a two-bedroom flat. However, both can live in a single-bedroom flat by paying \$350 each.

Step 2

(a) The total rent saved by living together is (\$350 + \$350) - (\$500) = \$700 - \$500 = \$200.

Person K is willing to pay \$175 for the dish problem to live together. Since \$175 < \$200, they should live together.

Person K can live alone in order to avoid the problem of dirty dishes by paying \$350 for a single-bedroom apartment. Person K is ...

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