Question

Hippo, Lion, and Possum must decide how to split up the three bedrooms (big, medium, and small) in the house that they are renting.Hippo values the big bedroom at $700, the medium bedroom at $200, and the small bedroom at $100.Lion values the big bedroom at $500, the medium bedroom at $300, and the small bedroom at $100.Possum values the big bedroom at $300, the medium bedroom at $200, and the small bedroom at $100.The bedrooms are indivisible. No animal can use more than one bedroom. (That is, the marginal value of a second or third bedroom is $0.)Which of the following splits is efficient?All of these splits are efficient.None of these splits are efficient.Hippo gets the medium bedroom; Lion gets the small bedroom; Possum gets the big bedroom.Hippo gets the small bedroom; Lion gets the big bedroom; Possum gets the medium bedroom.

Answer 1

Answer:

None of the splits are efficient

Explanation:

None of the splits are efficient

Reason: This is because all the three players value the big room at the highest, medium room as medium and small room at lowest. All the three wish to have big room in order to maximize their payoffs and utility. Giving big room to one and medium to another and small to another without anyone paying extra cost will lead to envy.