Joe Bob has a cousin Martin who consumes goods 1 and 2.Martin thinks that 2 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 Martin's preferences? A)U(x₁, x₂)=40x₁ + 20x₂ - 10,000. B)U(x₁, x₂)=16x²₁ +16x₁x₂ + 4x²₂. C)U(x₁, x₂)= min{4x₁, 2x₂}. D)U(x₁, x₂)=4x₁ + 2x₂ + 1000. E)More than one of the above does not represent Martin's preferences.

Question

Quizplus · Accepted Answer

Martin's preferences are such that he always substitutes two units of good 2 for one unit of good 1. The only utility function that does not reflect this is option C, which creates a function where the minimum value of either 4 units of good 1 or 2 units of good 2 is used to determine overall utility.

Joe Bob Has a Cousin Martin Who Consumes Goods 1