Assume that Katie has the preferences shown in the above table. Also assume that the price of a can of Pepsi is $3.00 and that the price of a slice of pizza is $2.00. If she has $16 available to spend, what combination of Pepsi and pizza will be her consumer optimum?
A) 1 can of Pepsi, 4 slices of pizza
B) 2 cans of Pepsi, 5 slices of pizza
C) 4 cans of Pepsi, 2 slices of pizza
D) 6 cans of Pepsi, 0 slices of pizza

Question

Quizplus · Accepted Answer

To find the consumer optimum, we need to compare the marginal utility per price of Pepsi and pizza. For Pepsi, the marginal utility per price is the highest at 2 cans, while for pizza, it is the highest at 4 slices. Therefore, Katie should buy 4 cans of Pepsi ($3.00 each) for a total cost of $12.00 and 2 slices of pizza ($2.00 each) for a total cost of $4.00, bringing her total expenditure to $16.00. This combination gives her the highest total utility for her budget.

Assume That Katie Has the Preferences Shown in the Above