Assume that 7 units of good x are a perfect substitute for 11 units of good...

Assume that 7 units of good x are a perfect substitute for 11 units of good y. Which utility function describes this situation?

A. ?^7?^11

B. ?^11?^7

C. 7x+11y

D. 11x+7y

E. ??? ( ?/7 , ?/11)

F. ??? ( ?/11 , ?/7 )

Solutions

Expert Solution

Option D ( 11x + 7y)

Explanation

MRS_XY = Marginal Utility of X / Marginal Utility of good Y

The MRS_XY is equal to (11/7), so, the slope of the IC = - (11/7) and, so, the equation of the IC would be U₀ = 11x + 7y, and, therefore, the utility function would be

U (x, y) = 11x + 7y

Rahul Sunny answered 1 year ago

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