Consider a consumer choosing between spending her money on food,F,or clothing,C. Assume that a unit of food and a unit of clothing have the same price, and that the consumer can afford a total of 20 units of either food or clothing. This is an example of:
A) a constrained optimization problem.
B) a sunk cost.
C) a sinking cost.
D) the No Marginal Improvement Principle.

Question

Quizplus · Accepted Answer

This is an example of a constrained optimization problem because the consumer is choosing between two options (food and clothing) subject to a budget constraint (20 units). The consumer must optimize her spending to get the most utility out of the limited funds available.

Consider a Consumer Choosing Between Spending Her Money on Food,F,or