Harmon's utility function is U(x₁, x₂) = x₁x₂. His income is $100. The price of good 2 is p₂= 4. Good 1 is priced as follows. The first 15 units cost $4 per unit and any additional units cost $2 per unit. What consumption bundle does Harmon choose? A) (12.5, 12.5) B) (25, 12.5) C) (12.5, 25) D) (15, 10) E) None of the above.

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Harmon's budget constraint is 100 = 4x₁ + 4(15) + 2(x₁ - 15) = 4x₁ + 60 + 2x₁ - 30 = 6x₁ + 30. Solving for x₁, we get x₁ = 12.5. Substituting this into the utility function, we get U(12.5, x₂) = 12.5x₂. To maximize utility, Harmon should choose x₂ such that MU₂/p₂ = MU₁/p₁. Since p₂ = 4 and p₁ = 4 for the first 15 units and p₁ = 2 for any additional units, we have MU₂/4 = MU₁/4 for the first 15 units and MU₂/4 = MU₁/2 for any additional units. Since MU₁ = x₂ and MU₂ = x₁, we have x₂/4 = x₁/4 for the first 15 units and x₂/4 = x₁/2 for any additional units. Substituting x₁ = 12.5, we get x₂ = 12.5 for the first 15 units and x₂ = 25 for any additional units. Therefore, Harmon chooses the consumption bundle (12.5, 12.5).

Harmon's Utility Function Is U(x1, X2) = X1x2

Harmon's Utility Function Is U(x₁, X₂) = X₁x₂