Consumer Dave is considering whether to rent house with fixed utilities or pay f

Question

Consumer Dave is considering whether to rent house with fixed utilities or pay for his own usage. House A in the area costs $2000.00 for rent, without utlities included. House B does include utilities and costs $2500.00 per month. Demand for utilities for tenants in the area is Q = 1500-50p. The utility company for the city charges $.05 per unit of usage for utilities to its users. Considering the above:

a. How much would Consumer Dave pay for utilties if he were to pay for his own usage?

b. Is Consumer Dave paying more to live in House A or House B?

Explanation / Answer

a) Total cost of utilities will be Q*0.05. Usinhg demand function Q at P = 0.05, Q= 1497.5. The cost will be equal to 0.05*1497.5 = $74.87.

Dave must pay $74.87 for utilities.

b) Dave is payin more to live in house B as it will cost 2000+74.87 = 2074.87 to live in house A with utilities.

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