question archive "Lorenzo lives on X and Y only
Subject:BusinessPrice:1.87 Bought7
"Lorenzo lives on X and Y only. His utility function is U (X,Y) = min(3X+4Y; 7Y). The prices of both goods are positive. He will:
a. Never buy more X than Y;
b. Always buy equal amounts of the two goods;
c. Always buy more Y than X;
d. Always buy more X than Y;
e. More than one of the above is true."
Answer:
B
Step-by-step explanation
Lorenzo will buy equal amounts of the two goods. This is because the goods are complements as revealed by the Min function, so, both of the goods are consumed together.