The price of bread is $1.50 per pound and the price of butter is $3 per pound.Steve has an income of $30,with which he buys 4 pounds of bread.How many pounds of butter does he buy,assuming he buys nothing else and he maximizes his utility?
A) 8
B) 12
C) 4
D) There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

With an income of $30, Steve can buy up to 20 pounds of either bread or butter, but not both. 
Buying 4 pounds of bread will cost him $6 (4 x $1.50). Substracting this amount from his income leaves him with $24. 
To maximize his utility, he should now spend all of his remaining income on butter. Given the price of butter, he can buy 8 pounds of butter with the remaining $24 (8 x $3). 
Therefore, Steve will buy a total of 4 pounds of bread and 8 pounds of butter, making the answer A.

The Price of Bread Is $1