Carla has utility function U (x, y) = vx + 2y over goods x and y a) Do we have a name for this type of utility function? Are Carla's preferences well-behaved? b) Let Carla have budget I=$40, and let prices be Px=$2, Py=$8. What bundle will Carla consume? c) What if Carla's budget drops to $20? [Think about: could this utility function describe Carla's preferences over bread and ice cream?]

Microeconomic Theory
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ISBN:9781337517942
Author:NICHOLSON
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Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.8P
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Carla has utility function U(x, y) = vx + 2y over goods x and y
a) Do we have a name for this type of utility function? Are Carla's preferences well-behaved?
b) Let Carla have budget I=$40, and let prices be Px=$2, Py=$8. What bundle will Carla consume?
c) What if Carla's budget drops to $20?
[Think about: could this utility function describe Carla's preferences over bread and ice cream?]
Transcribed Image Text:Carla has utility function U(x, y) = vx + 2y over goods x and y a) Do we have a name for this type of utility function? Are Carla's preferences well-behaved? b) Let Carla have budget I=$40, and let prices be Px=$2, Py=$8. What bundle will Carla consume? c) What if Carla's budget drops to $20? [Think about: could this utility function describe Carla's preferences over bread and ice cream?]
Expert Solution
Step 1

Well-behaved preferences are those that are monotonic and convex.

The equilibrium is established where the MRSxy = Px/Py

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