Question

Sue views hot dogs and hot dog buns as perfect complements in her consumption, and the corners of her indifference curves follow the 45-degree line. Suppose the price of hot dogs is $5 per package (8 hot dogs), the price of buns is $3 per package (8 hot dog buns), and Sue's budget is $48 per month. What is her optimal choice under this scenario?

Answer 1

Answer:

6 packages of hot dogs and 6 packages of buns

Explanation:

The indifference curves follow the 45-degree so the ratio for the hot dog:bun will be 1:1. Each package of hot dog gives 8 hot dogs while each package of the bun gives 8 hot dog buns. The ratio of hot dog package: buns package that Sue needs will be:

(number of hot dogs every package)/ (number of buns every package) * (ratio of hot dog : bun)

8/8 * 1/1= 1

The optimal choice package ratio is 1:1, then the amount of food Sue can buy will be: 48$/ (1*$5 + 1*$3)= $48/$8= 6 package.

The optimal choice is 6 packages of hot dogs and 6 packages of buns