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 eggs are $2 and bacon is $1,what will be her optimal purchase?
A)0 egg and 8 bacon.
B)1 egg and 6 bacon.
C)2 eggs and 4 bacon.
D)3 eggs and 2 bacon.
E)4 eggs and 0 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 eggs are $2 and bacon is $1,what will be her optimal purchase?
A)0 egg and 8 bacon. 
B)1 egg and 6 bacon. 
C)2 eggs and 4 bacon. 
D)3 eggs and 2 bacon. 
E)4 eggs and 0 bacon.

Quizplus · Accepted Answer

To find the optimal purchase, we need to calculate the marginal utility per dollar of each item.

Marginal utility per dollar of eggs = 7/2 = 3.5
Marginal utility per dollar of bacon = 5/1 = 5

Since the marginal utility per dollar of bacon is higher than that of eggs, Ketta should buy more bacon and fewer eggs to maximize her satisfaction within her budget.

We can buy 4 bacons with $4, which leaves us with $4. With $4, we can buy 2 eggs. Therefore, the optimal purchase is 2 eggs and 4 bacons, i.e., choice C.

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