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

question 38

Multiple Choice

Harvey Habit has a utility function U(c₁, c₂) = min{c₁, c₂}, where c₁ and c₂ are his consumption in periods 1 and 2 respectively.Harvey earns $147 in period 1 and he will earn $63 in period 2.Harvey can borrow or lend at an interest rate of 10%.There is no inflation.

• A)Harvey will save $102.
• B)Harvey will borrow $40.
• C)Harvey will neither borrow nor lend.
• D)Harvey will save $40.
• E)None of the above.

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Definitions:

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate overhead costs to products or job orders based on a chosen activity base.

Overapplied Overhead

A situation in cost accounting where the allocated overhead for a period exceeds the actual overhead incurred.

Job Order Cost System

This system is a cost accounting method that assigns costs to specific production batches or jobs, making it easier to track the financial resources spent on each job.