Margo has a monthly income of $60 to spend on cups of coffee or bagels.Each cup of coffee costs $3 and each bagel costs $4.Margo spends all of her income, and at her consumption bundle, she is willing to forgo 1 bagel to get the next cup of coffee to achieve the same level of utility.To maximize her utility, Margo should:

Question

Quizplus · Accepted Answer

Margo is willing to trade 1 bagel for 1 coffee, but a bagel costs more than a coffee. To maximize utility, she should consume more coffee and fewer bagels, as coffee gives her more utility per dollar spent.

Margo Has a Monthly Income of $60 to Spend on Cups