Multiple Choice
Mickey is considering buying a tape recorder. His utility function is U(x, y, z) = x + f(y) z.5, where x is the amount of money he spends on other goods, y is the number of tape recorders he buys, and z is the number of tapes he buys. Let f(y) = 0 if y < 1 and f(y) = 8 if y is greater than or equal to 1. The price of tape recorders is $20, the price of tapes is $1, and Mickey can easily afford to buy a tape recorder and several tapes. Will he buy a tape recorder?
A) He should buy a tape recorder at these prices, but if tapes were any more expensive, it would not pay to buy one.
B) He should not buy a tape recorder.
C) He is indifferent to buying a tape recorder or not.
D) Even if the price of tapes doubled, he should still buy a tape recorder.
E) There is not enough information here for us to be able to tell.
Correct Answer:
Verified
Correct Answer:
Verified
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