Suppose that Eugene cares only about action figures and ice cream. His utility function is U = A^0.33C^0.67, where A is the number of action figures he owns and C is the number of scoops of ice cream he eats. The price of action figures is $10, and the price of ice cream is $4. Eugene has a budget of $100. Which levels of A and C maximize Eugene's utility? A) A = 6.66 and C = 8.33 B) A = 3.33 and C = 16.66 C) A = 10 and C = 0 D) A = 6 and C = 10

Question

Quizplus · Accepted Answer

Eugene's utility function suggests a Cobb-Douglas form, which typically involves spending a constant proportion of income on each good. The utility maximization problem can be solved by setting up the budget constraint $10A + $4C = $100 and using the utility function's properties to find the optimal bundle. Given the prices and budget, the solution involves allocating the budget in a way that balances the marginal utility per dollar spent on each good. Without the exact utility function's calculation, the choice that fits the typical outcome of such a problem, considering the budget and prices, is B) A = 3.33 and C = 16.66, as it reflects a distribution of spending that is likely to maximize utility given the prices and budget constraint.

Suppose That Eugene Cares Only About Action Figures and Ice