Harmon's utility function is U(x₁, x₂)= x₁x₂.His income is $100.The price of good 2 is p₂ = 4.Good 1 is priced as follows.The first 15 units cost $4 per unit and any additional units cost $2 per unit.What consumption bundle does Harmon choose? A)(12.5, 12.5) B)(25, 12.5) C)(12.5, 25) D)(15, 10) E)None of the above.

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Quizplus · Accepted Answer

Harmon's budget constraint is 100 = 4x₁ + 4(15) + 2(x₁ - 15) = 6x₁ + 20. Solving for x₁, we get x₁ = 12.5. Substituting this into the utility function, we get U(12.5, x₂) = 12.5x₂. To maximize utility, Harmon should choose x₂ = 12.5.

Harmon's Utility Function Is U(x1, X2)= X1x2

Harmon's Utility Function Is U(x₁, X₂)= X₁x₂