Ike's utility function is U(x, y)  xy.Ike consumes 2 units of x and 8 units of y.

A) Ike would be willing to make small exchanges of x for y in which he would give up 4 units of x for every unit of y he got.
B) Ike would be willing to trade away all of his x for y as long as he got more than 4 units of y for every unit of x he gave up.
C) Ike will always be willing to make trades at any price if he does not have equal amounts of the two goods.
D) Ike likes x and y equally well so he is always willing to exchange 1 unit of either good for more than 1 unit of the other.
E) None of the above.

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Jenna Demelio · Accepted Answer

Final Answer : E, Explanation :  Ike's utility function is U(x, y) = xy, which implies that his marginal rate of substitution (MRS) between x and y (the rate at which he is willing to substitute x for y) depends on the current quantities of x and y he has. None of the statements accurately describe how Ike would trade between x and y based on this utility function, as his willingness to trade depends on maintaining the same level of utility, which is not clearly supported by any of the given options.

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