Charlie Consumes Apples and Bananas $\mathbf{U}\left(X_{A}, X_{B}\right)=x_{A} x^{2} B$

question 27

Multiple Choice

Charlie consumes apples and bananas. His utility function is $\mathbf{U}\left(X_{A}, X_{B}\right) =x_{A} x^{2} B$
-refer to scenario above,, Charlie's utility function is x_Ax_B.The price of apples used to be $1 per unit, and the price of bananas $2 per unit.His income was $40 per day.If the price of apples increased to $1.25 and the price of bananas fell to $.25, then in order to be able to just afford his old bundle, Charlie would have to have a daily income of

• A)$13.75.
• B)$41.25.
• C)$27.50.
• D)$56.
• E)$110.

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Definitions:

Incremental Net Income

Net income resulting from a particular action or decision, calculated as the difference in total net income if the action is taken versus if it is not.

Tax Rate

The percentage at which an individual or corporation is taxed by the government on income or profits.

After-Tax Discount Rate

The discount rate used in capital budgeting that accounts for the effects of income tax.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the goal of a firm's shareholders' wealth maximization.