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Microeconomics

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Characterizing the Optimal Bundle

MICRO-APNGFX

Which of the following characterizes the optimal choice for a utility-maximizing individual with utility function $U(x,y)$ income $I$, who faces prices $P_x$ and $P_y$?

Note: Assume we have an interior (non-corner) solution and the utility function is smooth (not kinked).

A

$\cfrac{P_x}{P_y}=\cfrac{MU_x}{MU_y}$

B

$\cfrac{P_y}{P_x}=\cfrac{MU_x}{MU_y}$

C

$\cfrac{P_x}{P_y}=\cfrac{MU_y}{MU_x}$

D

None of the above are correct.