Waldo's utility function is U(x, y)= xy.Waldo consumes 5 units of x and 25 units of y.
A)Waldo would be willing to make small exchanges of x for y in which he would give up 5 units of x for every unit of y he got.
B)Waldo would be willing to trade away all of his x for y as long as he got more than 5 units of y for every unit of x he gave up.
C)Waldo likes x and y equally well so he is always willing to exchange 1 unit of either good for more than 1 unit of the other.
D)Waldo will always be willing to make trades at any price if he does not have equal amounts of the two goods.
E)None of the above.

Question

Quizplus · Accepted Answer

Waldo's utility function is U(x, y) = xy, which means his marginal rate of substitution (MRS) between x and y changes as the quantities of x and y change. None of the statements accurately describe how Waldo would trade between x and y based on this utility function, as his willingness to trade depends on the specific quantities of x and y he has, aiming to maintain a balance that maximizes his utility.

Waldo's Utility Function Is U(x, Y)= Xy