Recall Bob and Ray in Problem 4

question 2

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) = (2 + 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 $1,200 to spend on the sofa and other stuff. Ray has a total of $1,200 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) $1,500.
• B) $600.
• C) $1,000.
• D) $550.
• E) $2,000.

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Definitions:

Alternative Hypothesis

A hypothesis that contradicts the null hypothesis, proposing that there is a significant difference or effect.

Null Hypothesis

A default hypothesis that there is no significant difference or effect, often tested against an alternative hypothesis in statistical analysis.

Researcher Interest

The particular area of study or question that a researcher is focused on exploring in their work.

Alternative Hypothesis

In hypothesis testing, it is the hypothesis that suggests there is a statistically significant effect or difference between groups or variables, as opposed to the null hypothesis.