Charlie's utility function is U(x, y)= xy².His marginal rate of substitution between x and y does not change if the amount of both goods doubles.

Question

Quizplus · Accepted Answer

The fact that the marginal rate of substitution between x and y does not change when the amount of both goods doubles implies that the utility function exhibits constant marginal rate of substitution (MRS) or is a perfect substitute utility function. This means that the MRS is equal to a constant ratio, independent of the quantities consumed. In other words, the ratio of the marginal utility of x to the marginal utility of y remains constant. Therefore, the answer is true.

Charlie's Utility Function Is U(x, Y)= Xy2

Charlie's Utility Function Is U(x, Y)= Xy²