pling. The budget set, or budget constraint, below shows the possible combinatio

Question

pling. The budget set, or budget constraint, below shows the possible combinations of brownies and ice cream cones that can be purchased. Assume that this person has a total of$18 to spend on brownies and ice cream cones. Brownies 18 16 How much does a brownie cost? Number 10 Budget Constraint Assume that at point A, the marginal utility from a brownie is 10 and the marginal utility for an ice cream cone is 18. This person: 1 2 3 4 5 6 7 9 10 11 12 13 14 15 Ice Cream Cones should consume more ice cream cones and fewer brownies. O is utility maximizing should consume more brownies and fewer ice cream cones. Previous Give Up & View Solution 2 Check Answer Next Exit

Explanation / Answer

a. As given in the graph, the maximum quantity of brownies that $18 can buy is 18.

Thus cost of a brownie = 18/18 = $1

b. Marginal utility of icecream cone is 18 > utility of brownie which is 10.

Thus, choice 1. to maximize his utility the person will consume more icecream cones than brownie.

A is not the point of utility maximization as the marginal utility of icecream cone is much more than that of brownie.

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