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4 April, 18:09

Kasey has income of $20.00. She always consumes 5 ounces of cream cheese with one bagel. If the price of cream cheese is $0.50 per ounce and the price of a bagel is $1.50, Kasey will maximize her utility by purchasing bagels and ounces of cream cheese.

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  1. 4 April, 18:34
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    Kasey's utility will maximized at 25 ounces of cheese and 5 bagels of cheese

    Explanation:

    In order to maximize utility, Kasey has to spend the entire $20 on a combination of cream and cheese that is optimum.

    The applicable formula is (5 ounces of cream*price of cream) + (1 bagel of cheese * price of cheese)

    5*$0.5+1*$1.5=$4

    He must spend $4 per purchase

    The number of purchases = total income/spend per purchase

    =$20/$4

    =5 times

    Kasey will maximize utility by buying 5 ounces*5=25 ounces of cheese and buying 1 bagel of cheese * 5=5 bagels

    25 ounces * $0.5+5 bagels * $1.5=$20
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