Hatfield and McCoy Burn with Hatred for Each Other

question 27

Multiple Choice

Hatfield and McCoy burn with hatred for each other. They both consume corn whisky. Hatfield's utility function is and McCoy's utility is , where W_H is Hatfield's whisky consumption and W_M is McCoy's whisky consumption, measured in gallons. The sheriff has a total of 60 gallons of confiscated whisky which he could give back to them. For some reason, the sheriff wants them both to be as happy as possible and he wants to treat them equally. The sheriff should give them each

• A) 30 gallons.
• B) 20 gallons and spill 20 gallons in the creek.
• C) 24 gallons and spill the rest in the creek.
• D) 10 gallons and spill 40 gallons in the creek.
• E) 5 gallons and spill the rest in the creek.

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Definitions:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, indicating the sensitivity of demand to price changes.

Optimal Prices

The price point that maximizes a firm's profits or achieves the best balance between sales volume and profit margins.

Economies of Scale

The financial benefits that companies gain as a result of their size, production volume, or operational scope, where the cost for each unit of production typically falls as the scale expands.

Third-Degree Price Discrimination

A pricing strategy where different prices are charged to different groups of consumers for the same product, based on elasticity of demand.