# Victor is the manager of a local bank branch in College Station where he consumes bundles of two commodities x and y. Prices in College Station are px=1 and py=5. He is offered a transfer to Dallas where prices are px=2 and py=8; Victor’s utility function is U(x,y)=xy and his income in College Station is \$5000. (Victor’s utility maximization is always characterized by the tangency rule). Will Victor be able to afford what he was buying in College Station if he is offered a salary in Dallas that guarantees his welfare is the same with the transfer?A. YesB. No

Question
9 views

Victor is the manager of a local bank branch in College Station where he consumes bundles of two commodities x and y. Prices in College Station are px=1 and py=5. He is offered a transfer to Dallas where prices are px=2 and py=8; Victor’s utility function is U(x,y)=xy and his income in College Station is \$5000. (Victor’s utility maximization is always characterized by the tangency rule). Will Victor be able to afford what he was buying in College Station if he is offered a salary in Dallas that guarantees his welfare is the same with the transfer?

A. Yes

B. No

check_circle

Step 1

The utility function is given as U(x, y) = xy. The MUx  and MUy can be written as;

Step 2

It is given that the Px = 1 and Py = 5. Utility maximization can be express as follows;

Step 3

The budget const...

### Want to see the full answer?

See Solution

#### Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in