if Charlie's utility function were X ⁵_AX_B, if apples cost 50 cents each, and if bananas cost 10 cents each, Charlie's budget line would be tangent to one of his indifference curves whenever A)5X_B = 5X_A. B)X_B = 5X_A. C)X_B = X_A. D)X_A = 5X_B. E)50X_A + 10X_B = M.

Question

Quizplus · Accepted Answer

The budget line is tangent to an indifference curve when the marginal rate of substitution (MRS) is equal to the price ratio. The MRS is the slope of the indifference curve, and the price ratio is the ratio of the prices of the two goods. In this case, the MRS is X_A⁴/X_B, and the price ratio is 50/10 = 5. So, the budget line will be tangent to an indifference curve whenever X_A⁴/X_B = 5, which is equivalent to X_B = 5X_A.

If Charlie's Utility Function Were X 5A XB, If Apples

If Charlie's Utility Function Were X ⁵_AX_B, If Apples