Rollo Would Love to Have a Mercedes

question 97

Multiple Choice

Rollo would love to have a Mercedes.His preferences for consumption in the next year are represented by a utility function U(x, y) , where x = 0 if he has no Mercedes and x = 1 if he has a Mercedes for the year and where y is the amount of income he has left to spend on other stuff.If U(0, y) = the square root of y and U(1, y) = (10/9) (y^.5) and if Rollo's income is $50,000 a year, how much would he be willing to pay per year to have a Mercedes?

• A)$5,555.55
• B)$5,000
• C)$12,200
• D)$9,500
• E)$10,000

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