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. The benefit of food is given by B(F) = 100√F, with MB(F) = 50/√F. The benefit of clothing is given by B(C) = 25C, with MB(C) = 25. How many units of food should the consumer buy?
A) 0
B) 2
C) 4
D) 6

Question

Quizplus · Accepted Answer

To find the optimal choice, we need to equate the marginal benefit of the two goods. In other words, we need to find the point where MB(F) = MB(C).

50/√F = 25

Solving for F, we get:

√F = 2

F = 4

This means the consumer should buy 4 units of food and nothing for clothing. At this point, the marginal benefit of food and clothing will be equal, and the consumer will be maximizing her total utility.

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