Ernie's utility function is U(x, y)= 32xy.He has 10 units of good x and 8 units of good y.Waldo's utility function for the same two goods is U(x, y)= 3x +5y.Waldo has 9 units of x and 13 units of y.
A)Waldo prefers Ernie's bundle to his own, but Ernie prefers his own bundle to Waldo's.
B)Each prefers the other's bundle to his own.
C)Neither prefers the other's bundle to his own.
D)Ernie prefers Waldo's bundle to his own bundle, but Waldo prefers his own bundle to Ernie's.
E)Since they have different preferences, there is not enough information to determine who envies whom.

Question

Quizplus · Accepted Answer

To compare their bundles, we need to calculate their utility levels. 
Ernie's utility for his own bundle is:
U(10, 8) = 32(10)(8) = 2560
His utility for Waldo's bundle is:
U(9, 13) = 32(9)(13) = 3744
Therefore, Ernie prefers Waldo's bundle to his own.
Waldo's utility for his own bundle is:
U(9, 13) = 3(9) + 5(13) = 72
His utility for Ernie's bundle is:
U(10, 8) = 3(10) + 5(8) = 50
Therefore, Waldo prefers his own bundle to Ernie's.
Thus, the answer is D, as Ernie prefers Waldo's bundle to his own, but Waldo prefers his own bundle to Ernie's.

Ernie's Utility Function Is U(x, Y)= 32xy