Consider Gary's utility function: U(X,Y) = 5 XY, where X and Y are two goods
If the individual consumed 10 units of X and received 250 units of utility, how many units of Y must the individual consume? Would a market basket of X = 15 and Y = 3 be preferred to the above combination? Explain.
Given that U(X,Y) = 5XY = 5(10)Y, then 250 = 50Y, or Y = 5.
Since this individual receives 250 units of satisfaction with (X = 10, Y = 5 ), would (Y = 3 and X = 15 ) be a preferred combination? At these values, U = 5(15 )(3 ) = 225. So, the first combination would be preferred.
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