Ron's utility function is given by U(x,y)= min[x,y]. If the price of x is 2 and the price of y is 1, Ron spends his $12 income on:
A)4 units of x and 2 units of y.
B)4 units of x and 4 units of y.
C)2 units of x and 4 units of y.
D)2 units of x and 2 units of y.

Question

Quizplus · Accepted Answer

Given Ron's utility function U(x,y) = min[x,y], he will aim to equalize the quantities of x and y to maximize his utility. With $12, and prices of $2 for x and $1 for y, he can afford 4 units of x ($8) and 4 units of y ($4), perfectly spending his $12 income while equalizing the quantities of x and y.

Ron's Utility Function Is Given by U(x,y)= Min[x,y]