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For lunch, Wendy eats only salads or fruit & yogurt smoothies. Her weekly food budget is $48. Each salad costs $6 and each smoothie costs $3. When deciding how much of each good to buy, Wendy knows that 2 salads and 4 smoothies will give her a utility of 8. What is Wendy’s utility-maximizing point?

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jepessoa

Answer:

The answer is: four salads and eight smoothies

Explanation:

If Wendy buys 2 salads and 4 smoothies for $24 she gets 8 units of utility. So every unit of utility costs Wendy $3 (=$24 / 8). Her total budget is $48, the maximum utility she can get for that budget is 16 units (=$48 / 3). Wendy can maximize he utility by buying four salads and eight smoothies that will cost her $48.

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