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Consider the Utility Function Specified on Page 14-17 u(x,r,c)u(x, r, c)

Question 9

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Consider the utility function specified on page 14-17: u(x,r,c)u(x, r, c) , where xx is the size of an individual's home, rr is their rank in home size relative to their neighbors, and cc is other goods. u(x,r,c)u(x, r, c) is increasing in cc and xx and decreasing in rr . Suppose a tornado comes through your neighbourhood and either totally destroys a house or leaves it undamaged. The largest house in the neighbourhood is destroyed and your house is undamaged. Based only on this information, you can be sure that you utility increased.

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