Charlie's utility function is U(x, y) = xy². His marginal rate of substitution between x and y does not change if the amount of both goods doubles.

Question

Quizplus · Accepted Answer

If the marginal rate of substitution between x and y does not change if the amount of both goods doubles, then the utility function must exhibit constant marginal rate of substitution (MRS) or be Cobb-Douglas. Both of these types of utility functions have the property that the MRS is constant along any given indifference curve, regardless of the quantity of goods consumed. Therefore, the statement is true.

Charlie's Utility Function Is U(x, Y) = Xy2

Charlie's Utility Function Is U(x, Y) = Xy²