Lolita, the Holstein cow, has a utility function is U(x, y)= x - x²/2 + y, where x is her consumption of cow feed and y is her consumption of hay.If the price of cow feed is $.30, the price of hay is $1, and her income is $4, and if Lolita chooses the combination of hay and cow feed that she likes best from among those combinations she can afford, her utility will be A)4.25. B)3.70. C)0.25. D)6.25. E)2.25.

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Quizplus · Accepted Answer

Lolita's utility function is U(x, y) = x - x^2/2 + y. To maximize utility given her budget constraint, we set up the Lagrangian: L = x - x^2/2 + y + λ(4 - 0.3x - y). Solving the first-order conditions, we find the optimal consumption of x and y. Substituting these values back into the utility function gives a utility of 4.25.

Lolita, the Holstein Cow, Has a Utility Function Is U(x