Joe Bob has a cousin Pete who consumes goods 1 and 2.Pete thinks that 3 units of good 1 is always a perfect substitute for 4 units of good 2.Which of the following utility functions is the only one that would not represent Pete's preferences? A)U(x₁, x₂)= 40x₁ +30x₂ -10,000. B)U(x₁, x₂)=4x₁ +0 3x₂ + 1000. C)U(x₁, x₂)= min{4x₁, 3x₂}. D)U(x₁, x₂)=16x²₁ + 24x₁x₂ + 9x²₂. E)More than one of the above does not represent Pete's preferences.

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Quizplus · Accepted Answer

Pete's preferences are such that he always thinks that 3 units of good 1 is a perfect substitute for 4 units of good 2. This means that his indifference curves must be straight lines with a slope of -3/4. Out of the given utility functions, only option C has a form that yields this property. In option C, the utility function takes the minimum value of either 4 units of good 1 or 3/4 units of good 2, which means that for any combination of goods, he would choose the combination that gives the same level of utility at the least cost. Thus, option C represents Pete's preferences.

Joe Bob Has a Cousin Pete Who Consumes Goods 1