7 Macs utility function is Uxy max 2xy 2yx a Macs preferenc

7. Mac\'s utility function is U(x,y) = max( 2x-y, 2y-x). a. Mac\'s preferences are quasilinear. b. If Mac has more x than y, any increase in his consumption of y would lower his utility. c. If Mac has more x than y, a decrease in his consumption of y would raise his utility d. Mac always prefers more of each good to less. e. Goods x and y are perfect substitutes ANS: B DIF: 3

Solution

In this case for utility to maximize, 2x-y should be equal to 2y-x.

Now in option B it is provided that Mac has more of X than Y. Now it tells that what will happen with the incease in the consumption of Y. Obviously as Y have a negative sign before it, An increase in the consumption of Y will definitely lower utility.

Thus given that Mac has more of X than Y, it is better to use that x.