Kenny Kink's Utility Function Is U(c₁, C₂) = Min{c₁, C₂}

question 37

Multiple Choice

Kenny Kink's utility function is u(c₁, c₂) = min{c₁, c₂}, where c₁ is his consumption in period 1 and c₂ is his consumption in period 2. He earns $200 in period 1 and $220 in period 2. Kenny can borrow and lend at an interest rate of 10%, and there is no inflation. The number of dollars that Kenny spends on consumption in the first period must be

• A) more than 200 but less than 220.
• B) exactly 200.
• C) more than 220.
• D) exactly 180.
• E) more than 180 but less than 200.

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Definitions:

Rent Expense

The cost incurred by a business or individual for the use of a property or equipment.

Operating Cash Flow

The total amount of money generated by a company's normal business operations.

Net Income

The amount of money a company has left as profit after paying off all expenses and taxes from its gross income.

Dividends

are payments made by a corporation to its shareholders, typically from profits earned.