Paul owns a home on the top of a hill and enjoys an unobstructed view of a large wooded area.The view was a large factor in his decision to buy the house and Paul values his view at $5000 per month.Sid purchases the undeveloped wooded area with plans to build a retail shopping centre.Sid expects to earn $10,000 a month from the shopping centre,which is $3000 more than his next best alternative.
-Refer to the information above.Suppose that building the shopping centre and receiving $10,000 per month was $6000 more than Sid's next best alternative.As a result,
A) Sid and Paul can still reach a monetary arrangement.
B) Paul cannot pay Sid enough to stop construction.
C) Sid will be willing to pay Paul $1000 for his loss.
D) Paul has less incentive to seek a legal remedy.
E) Paul will re-evaluate his value of the view.

Question

Quizplus · Accepted Answer

Sid's opportunity cost of not building the shopping center is now $6000, which is more than the $5000 Paul values his view at, making it unlikely Paul can compensate Sid enough to stop construction.

Paul Owns a Home on the Top of a Hill