Bill’s utility function is U ( x , y ) = xy . Charlie’s utility function is U (

Question

Bill’s utility function is U(x, y) = xy.

                  Charlie’s utility function is U(x, y) = 1,000xy + 2,000.

                  Percy’s utility function is U(x, y) = -xy.

                  Fred’s utility function is U(x, y) = -1/(10 + 2xy).

                  George’s utility function is U(x, y) = x(y + 1,000).

                  Ron’s utility function is U(x, y) = 0.5xy - 10,000.

                  Ginny’s utility function is U(x, y) = x/y.

a.       Who has the same preferences as Bill?

b.       Who has the same indifference curves as Bill?

c.       Explain why the answers to (a) and (b) differ.

Explanation / Answer

a. Charlie, Fred , Ron has same preferences as Bill.

b. Charlie, Percy, Ron has same indifference curves as Bill

c. Preferences of Bill and Percy are different while preferences of Bill and Fred are same even though they have different indifference curves.

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