Question

READ CAREFLLY! David gets $90 per month as an allowance to spend any way he pleases. Because he likes only peanut butter and jelly sandwiches, he spends the entire amount on peanut butter (at $2 per ounce) and jelly (at $1 per ounce). Bread is provided free of charge by a concerned neighbor. David is a picky eater and makes his sandwiches only one way-- with exactly two ounces of peanut butter and one ounces of jelly. He is set in his ways and will never change his preferences. To maximize utility, David should consume _____ ounces of peanut butter and _____ ounces of jelly each month. a. 30; 30

b. 18; 36

c. 36; 18

d. 22.5; 45

Answer 1

The price of peanut butter = $ 2 / ounce

Jelly = $ 1 / ounce

Budget constraint,

He consumes 2 units of peanut butter with 1 unit of jelly

Pb = 2J

Thus,

​​​​​​

Therefore, Pb = 2J= 2 × 18 = 36

David should consume 36 ounces of peanut butter and 18 ounces of jelly each month.

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