Herbie's Utility Function Is U(x, Y)= X + 8y -

question 4

Multiple Choice

Herbie's utility function is U(x, y) = x + 8y - y²/2, where x is the number of x's he consumes per week and y is the number of y's he consumes per week.Herbie has $200 a week to spend.The price of x is $1.The price of y is currently $4 per unit.Herbie has received an invitation to join a club devoted to the consumption of y.If he joins the club, Herbie can get a discount on the purchase of y.If he belonged to the club, he could buy y for $1 a unit.How much is the most Herbie would be willing to pay to join this club?

• A)$33
• B)$21
• C)$4.50
• D)$16.50
• E)None of the above.

---

Definitions:

English Pound

The currency of the United Kingdom, also known as the pound sterling.

Inflation Rate

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

International Currency Markets

Markets where currencies are traded internationally, crucial for determining foreign exchange rates.

Dollar

The currency unit of the United States, used as a standard monetary unit in international trade.