Ike's utility function is U(x, y)= xy.Ike consumes 2 units of x and 8 units of y.
A)Ike would be willing to make small exchanges of x for y in which he would give up 4 units of x for every unit of y he got.
B)Ike would be willing to trade away all of his x for y as long as he got more than 4 units of y for every unit of x he gave up.
C)Ike will always be willing to make trades at any price if he does not have equal amounts of the two goods.
D)Ike 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.
E)None of the above.

Question

Quizplus · Accepted Answer

Ike's utility function is U(x, y) = xy, which implies that his marginal rate of substitution (MRS) between x and y (the rate at which he is willing to substitute x for y) depends on the current quantities of x and y he has. None of the statements accurately describe how Ike would trade between x and y based on this utility function, as his willingness to trade depends on maintaining the same level of utility, which is not clearly supported by any of the given options.

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