What is the first-best allocation of water

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Question: Suppose that we care equally about utility and profits and that there is a total of w = 4 units of water on Arrakis.

What is the first-best allocation of water?

(b) What is the first-best allocation of water if w = 10?

(c) Suppose that the spice miners have enforced "property rights" that let them take as much water as they like before local inhabitants are allowed to take water.

Spice miners maximize their profits and do not care about the local inhabitants' utility. If there are w = 8 units of water, how much water will the inhabitants of Arrakis consume? Is this efficient?

Reference no: EM133630986

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