Final answer:
Lilly's utility-maximizing choice requires her to purchase the combination of paperback books and doughnuts where her budget line is tangent to the highest possible indifference curve, giving her the greatest satisfaction within her budget.
Step-by-step explanation:
The question revolves around Lilly's utility-maximizing choice when she has to decide how many paperback books and doughnuts she can buy with her $60, considering that paperback books cost $6 each, and doughnuts cost $0.50 each. In order to maximize utility, Lilly has to find a point where her budget constraint (the budget line) meets the highest possible indifference curve from Figure B1. This point will indicate the combination of books and doughnuts that provides Lilly the highest level of satisfaction without exceeding her budget of $60.
Without the specific diagram (Figure B2) showing the budget line and indifference curves, it is not possible to give an exact number of books and doughnuts Lilly should buy. However, generally, the solution lies where Lilly's budget line is tangent to the highest indifference curve, where the slope of the indifference curve (indicating her rate of substitution between books and doughnuts) equals the slope of the budget line (indicating the rate at which she can trade books for doughnuts and vice versa).