Question

Consider a household consisting of four college friends. The friends have made a commitment to live together for the next five years. Presently they live in Milwaukee where Abby will earn $200,000, Bonnie will earn $120,000, Cathy will earn $315,000, and Donna will earn $150,000 over the next five years. They have the option of moving to Miami. Moving to Miami would impose a one-time moving cost of $5,000 on each person. If they move to Miami, however, Abby will earn $180,000, Bonnie will earn $150,000, Cathy will earn $300,000, and Donna will earn $100,000 over the next five years. Moreover, each friend prefers to live in Miami over Milwaukee. In particular, Abby and Bonnie both value the quality of life in Miami versus Milwaukee over the next five years at $40,000 while Cathy and Donna place the value at $25,000 each. Should the household move to Miami or stay in Milwaukee? Is anyone a tied-mover or a tied stayer?

Answer 1

Answer:

Explanation:

Omaha Miami

Earnings Earnings Value of Quality Life Expense to Move to Miami Net Value Difference in Value

Alex 200000 180000 40000 5000 215000 15000

Bobby 120000 150000 40000 5000 185000 65000

Cory 315000 300000 25000 5000 320000 5000

Dana 150000 100000 25000 5000 120000 -30000

Tied mover – any person who moves with their partner even if the person's employment is better at the present location.

Assuming all the friends agree on moving to Miami, Dana will compromise in value, therefore, Dana is the Tied Mover.

Tied Stayer – any of them who stays with the partner at current location even if the person's employment opportunity is better somewhere else.

Assuming all the friends decided to be in Omaha, Alex, Bobby and Cory will compromise in value, therefore, Alex, Bobby and Cory are the Tied Stayers.