For lunch, Wendy eats only salads or fruit & yogurt smoothies. Her weekly food budget is $100. Each salad costs $5 and each smoothie costs $10.
a. Draw Wendy’s budget constraint.
b. What is the opportunity cost of purchasing one more smoothie? What is the opportunity cost of purchasing one more salad?
c. If the price of smoothies doubles to $20, what happens to Wendy’s opportunity set?
d. Describe intuitively how Wendy should make the optimal consumption decision.
a.) Wendy's Budget Constraint
Equation
5x+10y<100
See attached
b.) Opportunity cost
One more smoothie-18 salads
One more salad-9.5 smoothies
c.) Smoothies quantity purchased will decrease. The set will be altered.
d.) Wendy should choose any combination along the budget line as it will satisfy her utility.
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