Suppose a Consumer's Utility Function Is U(F₀,F₁)= F₀⁰

question 39

Multiple Choice

Suppose a consumer's utility function is U(F₀,F₁) = F₀^0.5F₁^0.5,where F₀ represents food consumed this year and F₁ represents food consumed next year.For that utility function,the marginal utility of food consumed this year is 0.5 × (F₁/F₀) ^0.5 and the marginal utility of food consumed next year is 0.5 × (F₀/F₁) ^0.5.Suppose the consumer earns $100 this year and nothing in the next,food costs $1 per unit in both years,and the interest rate is 10%.How much does she spend this year,and how much does she save?

• A) She spends $45 this year and saves $55.
• B) She spends $50 this year and saves $50.
• C) She spends $55 this year and saves $45.
• D) She spends $95 this year and saves $5.

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