Hatfield and McCoy Burn with Hatred for Each Other

question 4

Multiple Choice

Hatfield and McCoy burn with hatred for each other. They both consume corn whisky. Hatfield's utility function is U and McCoy's utility is U , 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 82 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) 8 gallons and spill 66 gallons in the creek.
• B) 16 gallons and spill 50 gallons in the creek.
• C) 41 gallons.
• D) 20 gallons and spill the rest in the creek.
• E) 4 gallons and spill the rest in the creek.

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Definitions:

Risk-Free Rate

The theoretical rate of return on an investment with no risk of financial loss, typically represented by government bonds.

Standard Deviation

A statistical measure of the dispersion or variability in a dataset, commonly used in finance to measure the volatility or risk associated with a particular investment.

Optimal

Referring to the most favorable or advantageous condition or level.

Optimal Risky Portfolio

A portfolio composition that offers the highest expected return for a given level of risk or the lowest risk for a given level of expected return.