Harvey Habit Has a Utility Function U(c1, C2) = Min{c₁

question 56

Multiple Choice

Harvey Habit has a utility function U(c1, c2) = min{c₁, c₂}. If he had an income of $880 in period 1 and $1,320 in period 2 and if the interest rate were 0.20, how much would Harvey choose to spend on bread in period 1?

• A) $1,620
• B) $360
• C) $540
• D) $2,160
• E) $1,080

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Definitions:

Depreciation

The reduction in the value of an asset over time, due in particular to wear and tear, typically used for tax and accounting purposes.

Noncash Charge

An expense reported in the income statement of a company that does not involve actual cash flow, such as depreciation or amortization.

Cash Budget

A financial plan that estimates cash inflows and outflows over a specific period, used for managing liquidity and ensuring financial stability.

Accounts Receivable Turnover

A financial metric that measures how efficiently a company collects revenue from its credit sales by dividing net credit sales by average accounts receivable.