Lolita, the Holstein Cow, Has a Utility Function Is U(x

question 42

Multiple Choice

Lolita, the Holstein cow, has a utility function is U(x, y) = x - x²/2 + y, where x is her consumption of cow feed and y is her consumption of hay.If the price of cow feed is $.30, the price of hay is $1, and her income is $4, and if Lolita chooses the combination of hay and cow feed that she likes best from among those combinations she can afford, her utility will be

• A)4.25.
• B)3.70.
• C)0.25.
• D)6.25.
• E)2.25.

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Definitions:

Economic Profits

The total revenue of a business minus its explicit and implicit costs; a measure of incremental gain over the total costs, including opportunity costs.

Supply Curve

A graph showing the relationship between the price of a good and the quantity supplied by producers.

Long-run Equilibrium

A state in which all factors of production and outputs are variable, allowing for the adjustment of all inputs, leading to a balanced economic condition over time.

Zero Economic Profits

Occurs when a firm earns just enough revenue to cover its total costs, including opportunity costs, but no more.