Bernice Has the Utility Function U(x, Y) = Min{x, Y}

question 18

Multiple Choice

Bernice has the utility function u(x, y) = min{x, y}, where x is the number of pairs of earrings she buys per week and y is the number of dollars per week she has left to spend on other things. (We allow the possibility that she buys fractional numbers of pairs of earrings per week.) If she originally had an income of $10 per week and was paying a price of $8 per pair of earrings, then if the price of earrings rose to $13 per pair, the compensating variation of that price change (measured in dollars per week) would be closest to

• A) $3.57.
• B) $5.56.
• C) $12.11.
• D) $11.11.
• E) $10.11.

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Definitions:

AVC Curve

The graph that represents the average variable cost per unit of output at different levels of production.

Variable Cost

Costs that change in proportion to the level of output or activity, such as materials and labor used in production.

Fixed Cost

A constant expense that does not change with the level of production or sales.

Total Revenues

The complete amount of income generated by a company or organization before any expenses are deducted.