Question

Caitlin is a college basketball player with differentiable utility function u(f)+y, where f represents expenditures on food and y represents expenditures on other goods. Assume that u′(0)>1,u′(f)>0 and u′′(f)<0 for 0

Answer 1

Lilly's optimal choice will be point B, where the budget line is tangent to the indifference curve Um. The higher indifference curve Uh is not affordable for Lilly, and a choice like G provides less utility than choice B.

Step-by-step explanation:

Lilly's optimal choice will be point B, where the budget line is tangent to the indifference curve Um. Lilly would have more utility at a point like F on the higher indifference curve Uh, but the budget line does not touch the higher indifference curve Uh at any point, so she cannot afford this choice. A choice like G is affordable to Lilly, but it lies on indifference curve Ul and thus provides less utility than choice B, which is on indifference curve Um.