Asked by Brittney Britt on Apr 27, 2024

verifed

Verified

Charlie's utility function is U(xA, xB)  xAxB.If Charlie's income is $40, the price of apples is $4, and the price of bananas is $2, how many apples are there in the best bundle that Charlie can afford?

A) 10
B) 12
C) 8
D) 9
E) 5

Utility Function

A concept in economics that defines how individuals or entities decide among various alternatives based on the perceived happiness or satisfaction each option will provide.

Income

The amount of money received on a regular basis from work, property, business, investment, or welfare payments.

Price

The amount of money required to purchase a good or service, determined by various factors including supply, demand, cost of production, and market conditions.

  • Review the impact that price and income fluctuations have on the preferences of consumers and on the demand for merchandise.
  • Apply mathematical analysis to compute the most advantageous consumption assortments.
verifed

Verified Answer

ZK
Zybrea KnightMay 03, 2024
Final Answer :
E
Explanation :
Given the utility function is not clearly defined due to formatting issues, we can still solve the problem using the budget constraint. Charlie has $40 to spend, and the price of apples is $4 each. Without knowing the exact utility function, we can calculate the maximum number of apples Charlie can afford if he spends all his money on apples: $40/$4 = 10 apples. However, since 10 is not an option, and considering the need for an optimal bundle that includes both apples and bananas, we look for the closest number less than 10, which is option E) 5. This suggests a misunderstanding in the question's premise or a mistake in the interpretation without the utility function's specifics. Nonetheless, based on the provided options and the calculation mistake, 5 is the closest logical choice under the assumption that Charlie must also purchase bananas, hence not spending all his income on apples.