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:

Worksheet

A columnar device used by accountants to aid them in completing the accounting cycle—often just referred to as "spreadsheet." It is not a formal report.

Revenue

The total income received by a company from its normal business activities, before any expenses are subtracted.

Long-term Liabilities

Financial obligations of a business that are due more than one year in the future, such as bonds payable or long-term loans.