Jim’s utility function is U(x, y) = xy. Jerry’s utility function is U(x, y) = 1,

Question

Jim’s utility function is U(x, y) = xy. Jerry’s utility function is U(x, y) = 1, 000xy + 2, 000. Tammy’s utility function is U(x, y) = xy(1 xy). Oral’s utility function is U(x, y) = 1/(10+ 2xy). Marjoe’s utility function is U(x, y) = x(y + 1, 000). Pat’s utility function is U(x, y) = 0.5xy 10, 000. Billy’s utility function is U(x, y) = x/y. Francis’ utility function is U(x, y) = xy.

(a) Who has the same preferences as Jim?

(b) Who has the same indifference curves as Jim?

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

Explanation / Answer

(a) Jim, Pat, and Oral all have the same preferences since their utility functions are monotonic transformations of Jim's

(b) Jerry, Pat, Oral, Tammy, and Francis have the same indifference curves as Jim, but Tammy and Francis have different preferences. Francis' utility function is a decreasing transformation of Jim's, so he orders his indi erence curves in the opposite way. Tammy's utility function is a transformation of Jim's but is sometimes increasing sometimes decreasing.

(c) Answer lies in the shape of IC

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