Question

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 4 salads and 8 smoothies will give her a utility of 8. She also knows that at this level, her marginal utility per dollar spent is the same for both items. What is Wendy’s utility-maximizing point?1 salad, 14 smoothies6 salads, 4 smoothies5 salads, 6 smoothies4 salads, 8 smoothies

Answer 1

Answer: Option (d) is correct.

Explanation:

Given that,

Wendy's weekly food budget = $48

Each salad costs = $6

Each smoothie costs = $3

She knows that 4 salads and 8 smoothies gives her a utility of 8

So, Wendy's utility-maximization point is:

4 salads, 8 smoothies

4 × $6 + 8 × $3 = $48

This is a utility maximization point.