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For lunch, Wendy eats only salads or fruit & yogurt smoothies. Her weekly food budget is $48. Each salad costs $6 and each smoothie costs
For lunch, Wendy eats only salads or fruit & yogurt smoothies. Her weekly food budget is $48. Each salad costs $6 and each smoothie costs $3.
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 $6, what happens to Wendy's opportunity set?
d. Describe intuitively how Wendy should make the optimal consumption decision.
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