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

question 13

Multiple Choice

Harvey Habit has a utility function U(c₁, c₂) = min{c₁, c₂}.If he had an income of $440 in period 1 and $880 in period 2 and if the interest rate were 20%, how much would Harvey choose to spend on bread in period 1?

• A)$1,280
• B)$320
• C)$213.33
• D)$960
• E)$640

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Definitions:

Economic Entity Assumption

An accounting principle that separates the transactions of a business from those of its owners or other businesses.

Cost Principle

The accounting principle that states goods and services should be recorded at their cost at the time of acquisition.

Historical Cost Principle

An accounting principle that requires assets to be recorded and reported at their purchase price, without adjustments for inflation or market value changes.

Owner's Equity

The value that accrues to the owners of a company after settling all its debts, equivalent to the assets minus the liabilities.