If Charlie's utility function were X ⁴_AX_B and if apples cost 30 cents each and bananas cost 10 cents each, Charlie's budget line would be tangent to one of his indifference curves whenever A)4X_B = 3X_A. B)X_B = X_A. C)X_A = 4X_B. D)X_B = 4X_A. E)30X_A + 10X_B = M.

Question

Quizplus · Accepted Answer

The marginal rate of substitution (MRS) is equal to the price ratio at the tangency point. For the utility function X⁴_AX_B, MRS = 4X_B/X_A. Setting MRS equal to the price ratio (30/10 = 3), we get 4X_B/X_A = 3, which simplifies to 4X_B = 3X_A.

If Charlie's Utility Function Were X 4A XB and If

If Charlie's Utility Function Were X ⁴_AX_B and If