Suppose Monica has $20 to spend on pizza and soda.The price of a slice of pizza is $1.00 and the price of a can of soda is $.75.Which of the following is the most affordable bundle for maximizing her utility?
A)20 slices of pizza and 10 cans of soda
B)10 slices of pizza and 20 cans of soda
C)4 slices of pizza and 17 cans of soda
D)7 slices of pizza and 17 cans of soda
E)20 slices of pizza and 25 cans of soda

Question

Quizplus · Accepted Answer

Monica's budget line can be represented by the equation 1x + 0.75y = 20, where x is the number of slices of pizza and y is the number of cans of soda. To maximize her utility, Monica should choose the bundle that lies on the highest indifference curve and is also on or below her budget line. The best bundle is where Monica spends as much as possible on pizza (which she prefers more) without exceeding her budget. The price of one slice of pizza is higher than the price of one can of soda, so Monica should buy fewer cans of soda and more slices of pizza. Option D gives Monica 7 slices of pizza and 17 cans of soda, costing a total of $18.25, which is the closest bundle that lies on or below the budget line. Therefore, option D is the best choice for Monica to maximize her utility.

Suppose Monica Has $20 to Spend on Pizza and Soda