Recall Bob and Ray in Problem 4

question 16

Multiple Choice

Recall Bob and Ray in Problem 4. They are thinking of buying a sofa. Bob's utility function is U_B(S, M_B) = (1 + S) M_B and Ray's utility function is U_R(S, M_R) = (4 + S) M_R, where S = 0 if they don't get the sofa and S = 1 if they do and where M_B and M_R are the amounts of money they have respectively to spend on their private consumptions. Bob has a total of $800 to spend on the sofa and other stuff. Ray has a total of $4,000 to spend on the sofa and other stuff. The maximum amount that they could pay for the sofa and still arrange to both be better off than without it is

• A) $1,000.
• B) $1,200.
• C) $1,800.
• D) $650.
• E) $2,400.

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Definitions:

Study Group

A collection of individuals brought together to participate in a research study or to collectively study a particular subject.

Null Hypothesis

A statement used in statistics that proposes there is no significant difference or relationship between specified populations, any observed difference being due to sampling or experimental error.

Scientific Hypothesis

A testable prediction about the relationship between two or more variables, forming the basis for an experiment or observational study.

Observations

The act of watching carefully with attention to details for the purpose of gathering data.