Charlie has a utility function U(x_A, x_B) = x_Ax_B, the price of apples is $1, and the price of bananas is $2. If Charlie's income were $200, how many units of bananas would he consume if he chose the bundle that maximized his utility subject to his budget constraint? A) 25 B) 50 C) 10 D) 100 E) 150

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Quizplus · Accepted Answer

Charlie's utility function is U(x_A, x_B) = x_A * x_B, which is a Cobb-Douglas utility function. To maximize utility subject to the budget constraint, Charlie should spend equal proportions of his income on apples and bananas. Given the prices, he will spend $100 on apples and $100 on bananas. Since bananas cost $2 each, he will buy 50 bananas.

Charlie Has a Utility Function U(xA, XB) = XAxB, the Price

Charlie Has a Utility Function U(x_A, X_B) = X_Ax_B, the Price