Question

Kasey has income of $20.00. She always consumes 5 ounces of cream cheese with one bagel. If the price of cream cheese is $0.50 per ounce and the price of a bagel is $1.50, Kasey will maximize her utility by purchasing bagels and ounces of cream cheese.

Answer 1

Answer:

Kasey's utility will maximized at 25 ounces of cheese and 5 bagels of cheese

Explanation:

In order to maximize utility,Kasey has to spend the entire $20 on a combination of cream and cheese that is optimum.

The applicable formula is (5 ounces of cream*price of cream)+(1 bagel of cheese * price of cheese)

5*$0.5+1*$1.5=$4

He must spend $4 per purchase

The number of purchases =total income/spend per purchase

                                           =$20/$4

                                           =5 times

Kasey will maximize utility by buying 5 ounces*5=25 ounces of cheese and buying 1 bagel of cheese *5=5 bagels

25 ounces *$0.5+5 bagels *$1.5=$20