Ellsworth's Utility Function Is U(x, Y) = Min{x, Y}

Ellsworth's utility function is U(x, y) = min{x, y}. Ellsworth has $150 and the price of x and the price of y are both $1. Ellsworth's boss is thinking of sending him to another town where the price of x is $1 and the price of y is $2. The boss offers no raise in pay. Ellsworth, who understands compensating and equivalent variation perfectly, complains bitterly. He says that although he doesn't mind moving for its own sake and the new town is just as pleasant as the old, having to move is as bad as a cut in pay of $A. He also says he wouldn't mind moving if when he moved he got a raise of $B. What are A and B?

A) A = 50 and B = 50.
B) A = 75 and B = 75.
C) A = 75 and B = 100.
D) A = 50 and B = 75.
E) None of the above.

Correct Answer:

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