Elmer's utility function is U(x, y)= min{x, y²}.If the price of x is $20, the price of y is $30, and Elmer chooses to consume 4 units of y, what must Elmer's income be? A)$540 B)$880 C)$440 D)$200 E)There is not enough information to tell.

Question

Quizplus · Accepted Answer

To find Elmer's income, we need to use the fact that he chooses to consume 4 units of y. Let's set up the equation:

U(x,4) = min{10x, 4y}

We know that the price of x is $20, so we can rewrite the equation:

U(20,4) = min{200, 120}

Since Elmer chooses to consume 4 units of y, we know that the minimum is 120. So:

U(20,4) = 120

Now we can use the utility function to solve for Elmer's income:

U(x,y) = 10 min{x, y}

120 = 10 min{20, 4}

120 = 10(4)

120 = 40x

x = $440

So Elmer's income must be $440.

Elmer's Utility Function Is U(x, Y)= Min{x, Y2}

Elmer's Utility Function Is U(x, Y)= Min{x, Y²}