Assume that Xand Y are mutually utility independent, that is U(x, y) = kxUx(x)+ kyUy(y)+ (1 – kx…

1). Assume that Xand Y are mutually utility independent, that is U(x, y) = kxUx(x)+ kyUy(y)+ (1 – kx – kr)Ux(x)14(Y) 2 where, Ux(x) = xfor 0 5 x 5 10, and Ur(y) = y3, for 0 5 y 51. Assume that you are indifferent between the two sure things: (X=10,Y=0),and (X = 0, Y = 0.9) Furthermore, assume that you are indifferent between the sure thing (X = 8, Y = 0.5) and the following lottery:

a) Determine the constants kx and ky for the appropriate utility function, and write down the resulting utility function. b) Are X and Y substitutes or complements? Why?

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