Maximilian consumes two goods, x and y. His utility function is U(x, y) = max{x, y}. Therefore x and y are perfect substitutes for Max.

Question

Quizplus · Accepted Answer

In the utility function U(x, y) = max{x, y}, x and y are perfect complements, not substitutes, because the utility is determined by the larger of the two quantities, indicating that Max derives utility from having a balance between x and y rather than substituting one for the other.

Maximilian Consumes Two Goods, X and Y