managerial econ
posted by jean .
Bridget has a limited income and consumes only wine and cheese; her current consumption choice is four bottles of wine and 10 pounds of cheese. The price of wine is $10 per bottle, and the price of cheese is $4 per pound. The last bottle of wine added 50 units to Bridget's utility, while the last pound of cheese added 40 units. Is Bridget making the utilitymaximizing choice? Why or why not? If not, what should she do instead? Why?

Cost = 10 w + 4 c
d (cost) = 10 dw + 4 dc
d (utility )= 50 dw + 40 dc
her present state is
w = 4
c = 10
Cost = 40 + 40 = 80
to stay at the present cost
10 dw + 4 dc = 0
or
dc =  (2.5)dw
so
d Utility at present cost = 50 dw 40(2.5) dw
= 50 dw  100 dw = 50 dw
so if I increase wine by 1, I decrease cheese by 2.5
AND I decrease my utility by 50!!!
eat more cheese, less wine !!!
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