Mr. Inflexible's utility function is U(x₁,x₂)= min(x₁,x₂). The price of x₁is $1, the price of x₂is $2, and Mr. Inflexible's budget is $120. If an excise tax of $1 per unit is placed on x₁, the utility maximizing bundle is: A)(40, 20). B)(50, 25). C)(30, 30). D)(20, 40).

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Without tax, the price ratio is 1:2 and the budget line equation is: 1x₁ + 2x₂ = 120 Solving for x₁ and x₂: x₁ = 120 - 2x₂ Plugging into the utility function: U(x₁,x₂) = min(120 - 2x₂, x₂) To maximize utility, we need to find the point where the marginal utility of each good is equal: MUx₁/Px₁ = MUx₂/Px₂ As both goods have a marginal utility of 1, this simplifies to: Px₁/Px₂ = 1/2 So, the optimal bundle will have twice as much of x₂ as x₁. Setting x₁ = y and x₂ = 2y, we can rewrite the budget line equation: y + 4y = 120 Solving for y: y = 24 So, the optimal bundle is: x₁ = 24 and x₂ = 48 With the $1 excise tax on x₁, the new price is $2, so the price ratio becomes 2:2 and the budget line equation is: 2x₁ + 2x₂ = 120 Solving for x₁ and x₂: x₁ = 60 - x₂ Plugging into the utility function: U(x₁,x₂) = min(60 - x₂, x₂) Once again, we need to find the point where the marginal utility of each good is equal: MUx₁/Px₁ = MUx₂/Px₂ This simplifies to: 1/2 = 1/2 So, the optimal bundle will still have twice as much of x₂ as x₁. Setting x₁ = z and x₂ = 2z, we can rewrite the budget line equation: 2z + 4z = 120 Solving for z: z = 20 So, the optimal bundle with the excise tax is: x₁ = 20 and x₂ = 40 Therefore, the utility maximizing bundle is (30, 30) and the answer is C.

Mr Inflexible's Utility Function Is U(x1,x2)= Min(x1,x2)

Mr Inflexible's Utility Function Is U(x₁,x₂)= Min(x₁,x₂)