Question

question: Cookie Monster always consumes cookies and milk in fixed proportions: 1 cookies to 3 ounce of milk. If he has an income of $100 and the price per cookie is $1 and the price of an ounce of milk is $3, what is the optimal bundle that Cookie Monster should consume?

Answer #1

the goods are complements as these are consumed in a fixed proportion.

The utility is maximum when the proposition is the same.

the utility from 1 cookie is the same as 3 once of milk, so the utility function is

U=min{C, (1/3) M}

C=quantity of cookies and M=quantities of milk

it means the consumption is:

C=M/3

budget line equation is

quantity of cookies * price of cookies +quantity of milk * price of milk=income

C+3M=100

M/3+3M=100 .....................C=M/3

10M/3=100

M=30

C=30/3

C=10

the optimal bundle that Cookie Monster should consume is 10 cookies and 30 milk of once

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