Teresa consumes both steak and lobster.Suppose the formula for her indifference curves is S = U - 1.5L,where S stands for the number of steaks,L stands for the number of lobsters,and U represents utility.Which of the following bundles would Teresa prefer?
A) 10 steaks and 4 lobsters
B) 9 steaks and 5 lobsters
C) 12 steaks and 2 lobsters
D) There is not enough information to answer the question.

Question

Quizplus · Accepted Answer

To determine which bundle Teresa prefers, we need to compare the level of utility (U) for each bundle. We know that the formula for her indifference curve is S = U - 1.5L, which means that she is indifferent between any two bundles that yield the same level of utility. 
Let's calculate the level of utility for each bundle using this formula: 
A) 10 steaks and 4 lobsters: U = 10 - 1.5(4) = 4
B) 9 steaks and 5 lobsters: U = 9 - 1.5(5) = 1.5
C) 12 steaks and 2 lobsters: U = 12 - 1.5(2) = 9
Since Teresa's utility function is decreasing in the number of lobsters and increasing in the number of steaks, the highest utility will be achieved by choosing a bundle with more steaks and fewer lobsters. 
Therefore, Teresa would prefer option C over option A, and option B over option C. Therefore, B is the best choice.

Teresa Consumes Both Steak and Lobster