Opportunity Cost HW

Rehearsal Rooms

REHEARSAL ROOMS

Capacity 5 4 3 2 2

You own a rehearsal studio, with .ve rooms of varying sizes. The maxi-

mum number of musicians that each room can accommodate is given in the

above chart. You pay a rent of £ 10,000/month for the studio. Electricity

costs, clean-up costs, etc.. . . are negligible.

When you rent out a room, you charge £ 10 per musician, which is the

going rate in the market.

A .ve-person band wants to rent out the 5-room. You know that the

musicians are poor and cannot accept your normal rates. They o.er to pay

you less. You are not worried that this might set a precedence.

Question: What is the minimum amount you should accept from them,

for each of the .ve scenarios below? The scenarios list your tentative plans

for the studios. For instance, under scenario D, if you do not rent out the 5-

room to these musicians, then you will (de.nitely) rent our the 5-room to four

musicians, the 4- room to three musicians, the 3-room to three musicians,

and the two 2-rooms to two musicians each, all at the rate of 10/musician.

Capacity 5 4 3 2 2

A 0 4 3 2 2

B 4 4 3 2 2

C 4 4 2 2 2

D 4 3 3 2 2

E 4 3 2 2 2