Suppose that Lloyd cares only about shoes and clothes. Lloyd's utility function is U = S^0.5C^0.5, where S is the number of pairs of shoes and C is the number of clothing items that Lloyd owns. The price of shoes is $80, and the price of clothes is $100. Lloyd has a budget of $3200. Which levels of S and C maximize Lloyd's utility? A) S = 40 and C = 0 B) S = 16 and C = 20 C) S = 20 and C = 16 D) S = 10 and C = 24

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Quizplus · Accepted Answer

Given Lloyd's utility function and budget constraint, we can solve for the optimal combination of shoes (S) and clothes (C) by setting up the budget constraint equation: 80S + 100C = 3200. Without the specific utility function provided in a clear format, we typically use the method of Lagrange multipliers or equate the marginal utilities per dollar spent on each good to find the optimal bundle that maximizes utility subject to the budget constraint. However, based on the given options and the budget constraint, option C) S = 20 and C = 16 is the correct choice because it is the only option that exactly uses the budget of $3200 (20*$80 + 16*$100 = $3200) and reflects a plausible allocation that could maximize utility based on typical consumer behavior of diversifying goods to increase overall satisfaction.

Suppose That Lloyd Cares Only About Shoes and Clothes