The following figure shows the indifference curves (IC) and the budget constraint (BC) of a consumer who needs to decide between the number of trousers and shirts he should purchase.

-Refer to the figure above.Given the consumer's budget constraint,the consumption bundle that maximizes his satisfaction consists of ________.
A) 0 shirts and 40 pairs of trousers
B) 10 shirts and 30 pairs of trousers
C) 20 shirts and 15 pairs of trousers
D) 35 shirts and 10 pairs of trousers

Question

The following figure shows the indifference curves (IC) and the budget constraint (BC) of a consumer who needs to decide between the number of trousers and shirts he should purchase.
 
-Refer to the figure above.Given the consumer's budget constraint,the consumption bundle that maximizes his satisfaction consists of ________.
A) 0 shirts and 40 pairs of trousers 
B) 10 shirts and 30 pairs of trousers 
C) 20 shirts and 15 pairs of trousers 
D) 35 shirts and 10 pairs of trousers

Quizplus · Accepted Answer

The point where the highest indifference curve tangent to the budget constraint is the optimal consumption bundle for the consumer. In this case, it is the point where the IC2 is tangent to the BC. This occurs at the point where the consumer is purchasing 15 pairs of trousers and 20 shirts. At this point, the consumer spends all of his budget ($600) and is at the highest attainable indifference curve. Therefore, the consumption bundle that maximizes his satisfaction consists of 20 shirts and 15 pairs of trousers.

The Following Figure Shows the Indifference Curves (IC) and the Budget