Minnie Has an Income of $300 in Period 1 and Will

Multiple Choice

Minnie has an income of $300 in period 1 and will have an income of $625 in period 2. Her utility function is U(c₁, c₂) = c^0.80₁c^0.20₂, where c₁ is her consumption in period 1 and c₂ is her consumption in period 2. The interest rate is 0.25. If she unexpectedly won a lottery which pays its prize in period 2 so that her income in period 2 would be $1,250 and her income in period 1 would remain $300, then her consumption in period 1 would

A) double.
B) increase by $400.
C) increase by $150.
D) stay constant.
E) increase by $120.