Utility maximization is always characterized by the tangency

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Reference no: EM131424870

James works for a delivery company in College Station where he consumes bundles of two commodities x and y. Prices in College Station are px=1 and py=5. He is offered a transfer to Dallas where prices are px=2 and py=5; James is guaranteed a salary in Dallas with which he would be able to buy exactly what he buys in College Station. James’s utility function is U(x,y)=x1/3y2/3 and his income in College Station is $2500. What happens to James’ utility if he accepts the transfer (James’ utility maximization is always characterized by the tangency rule)?

A) Increases 5.827%

B) Increases 6.234%

C) Decreases 3.245%

D) Increases 4.236%

E) Increases 1.275%

Reference no: EM131424870

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