In Problem 6, Elmer's utility function is U(x, y) = min{x, y²}. If the price of x is $20, the price of y is $20, and Elmer chooses to consume 8 units of y, what must Elmer's income be? A) $2,880 B) $320 C) $1,540 D) $1,440 E) There is not enough information to tell.

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Quizplus · Accepted Answer

Elmer's utility function is U(x, y) = min{x, y^2}. To maximize utility, Elmer will set x = y^2. If Elmer consumes 8 units of y, then x = 8^2 = 64. The cost for 8 units of y is 8 * $20 = $160, and the cost for 64 units of x is 64 * $20 = $1,280. Therefore, Elmer's total income must be $160 + $1,280 = $1,440.

In Problem 6, Elmer's Utility Function Is U(x, Y) =