Question

Which statement about interior solutions to a consumer’s choice problem is true?

Group of answer choices

if the utility function is U(X,Y)=XY, then tangency condition does not necessarily hold at an interior solution

if the utility function is U(X,Y)=XY, then the optimal solution might or might not be interior, depending on the shape of the budget

suppose the preference features perfect substitutes and there exists one interior solution, then there are more than one interior solutions

if the preference features perfect substitutes, then the optimal solution is always corner

Answer #1

Correct Answer : if the preference features perfect substitutes, then the optimal solution is always corner.

If the utility function is U(X,Y)=XY, then the tangency condition for the optimum solution is an interiror solution because at the point of optimum the slope of the indifference curve is equal to the slope of the budget constraint and in case of convex indifference curve as mentioned above, the solution is always an interior solution because budget constraint is downward sloping. Thus, option A and B are incorrect.

In the case of perfect substitutes, the optimal solution is always the corner solution because the indifference curve is linear in shape. Thus, option C is incorrect and Option D is correct.

Dan’s preferences are such that left shoes (good x) and right
shoes (good y) are perfect complements. Specifically, his
preferences are represented by the utility function U (x, y) =
minimum{x, y}.
(a) Draw several of Dan’s indifference curves. Which bundles are
at the “kink- points” of these curves?
(b) Assume that Dan’s budget for shoes is M = 10 and that the
price of a right shoe is py = 2. Find and draw Dan’s demand curve
for left...

Olivia likes to eat both apples and bananas. At the grocery
store, each apple costs $0.20 and each banana cost $0.25. Olivia’s
utility function for apples and bananas is given by U(A, B) = 6
(AB)1/2 . If Olivia has $4 to spend on apples and bananas, how many
of each should she buy to maximize her satisfaction?
Use the tangency condition to find the
optimal amount of A to relative to B .
MUA/PA = MUB/PB
Now plug this...

1. Consider the general form of the utility for goods that are
perfect complements.
a) Why won’t our equations for finding an interior solution to the
consumer’s problem work for this kind of utility? Draw(but do not
submit) a picture and explain why (4, 16) is the utility maximizing
point if the utility is U(x, y) = min(2x, y/2), the income is $52,
the price of x is $5 and the price of y is $2. From this picture
and...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 37 minutes ago

asked 42 minutes ago

asked 45 minutes ago

asked 53 minutes ago

asked 58 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago