The following table shows Ketta's utility for eggs and bacon.

-Refer to the above information to answer this question.If Ketta has a budget of $8 and the price of both eggs and bacon are $1,what will be her optimal purchase?
A)1 egg and 7 bacon.
B)2 eggs and 6 bacon.
C)3 eggs and 5 bacon.
D)4 eggs and 4 bacon.
E)5 eggs and 3 bacon.

Question

The following table shows Ketta's utility for eggs and bacon.
 
-Refer to the above information to answer this question.If Ketta has a budget of $8 and the price of both eggs and bacon are $1,what will be her optimal purchase?
A)1 egg and 7 bacon. 
B)2 eggs and 6 bacon. 
C)3 eggs and 5 bacon. 
D)4 eggs and 4 bacon. 
E)5 eggs and 3 bacon.

Quizplus · Accepted Answer

To maximize utility with a budget of $8, Ketta should choose the combination of eggs and bacon that gives the highest total utility within the budget constraint. With both eggs and bacon costing $1, Ketta can buy up to 8 eggs and 8 bacon. To determine the optimal purchase, we need to compare the marginal utility (MU) per dollar spent on eggs and bacon.

The table shows that the MU of the first few eggs is high, but it decreases as Ketta consumes more of them. The MU of bacon is lower, but it remains constant regardless of the quantity consumed. Therefore, Ketta should prioritize buying eggs until their MU per dollar spent is equal to the MU per dollar spent on bacon.

At $1 per item, Ketta can afford to buy 4 eggs and 4 bacon, with a total cost of $8. The marginal utility per dollar spent on the 4th egg is 3, which is equal to the MU per dollar spent on bacon. Thus, Ketta should buy 4 eggs and 4 bacon for the highest total utility within the budget constraint. Therefore, the answer is D.

The Following Table Shows Ketta's Utility for Eggs and Bacon