Question

Tim loves Chinese food including American Chinese dishes. Two popular Chinese dishes are General Tso’ Chicken (GTC) and spicy Sichuan wontons (SW). If Tim's utility function looks like

U = (GTC)(SSW), what kind of preferences does Tim have over the two dishes, GTC and SSW?

A) The dishes are perfect substitutes for Tim.

B) The dishes are perfect complements for him.

C) Tim loves GTC but is neutral towards SSW.

D) Tim has Cobb Douglas preferences over GTC and SSW.

Answer 1

The correct option is D) D) Tim has Cobb Douglas preferences over GTC and SSW.

Cobb-douglas preferences are of the form U= X^{​​​​​} Y^{​​​​​.}

Cobb-douglas utility function are of the form U =XY.

Utility function for perfect substitute is of the form U = X +Y. Hence, A cannot be true.

Utility function for. Perfect compliment is of the form

U = min{X,Y}. Hence B cannot be true.

C option is also wrong because neutral preference are not represented by given utility function. Hence, the correct option is D) Tim has Cobb Douglas preferences over GTC and SSW