Question: 4) My great-uncle died. In his will, he asked me so sell his house in Beverly Hills and share the…

02 May Question: 4) My great-uncle died. In his will, he asked me so sell his house in Beverly Hills and share the…

Posted at 08:30h in 2Past Paper by Exams

4) My great-uncle died. In his will, he asked me so sell his house in Beverly Hills and share the proceeds with his nephew and with his favorite charity. Of course I care about myself but I also care about his nephew and about charity; if I receive M and the nephew receives N and charity receives C, I will derive utility M1/2 N13C1/6. I sell the house for $1.2 Million. (a) How much money should I keep for myself, how much should I give to the nephew and how much should I give to charity? (b) I forgot that I have to pay income tax of 50% on all the money I receive and the nephew has to pay income tax of 40% on all the money he receives. (I live in California and he lives in Nevada, so I have to pay state income tax and he does not.) After taking taxes into account, how much money should I keep for myself, how much should I give to the nephew and how much should I give to charity? (Hint: What is the price of money I receive? What is the price of money the nephew receives? What is the price of money the charity receives?)

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