Answer :
To maximize her utility the price of food per unit must be $2.5.
What is utility?
Utility refers to the satisfaction or pleasure that a person derives from consuming a good or service. In economics, utility is a subjective measure of the value or usefulness that an individual derives from a good or service.
To maximize utility, Sam should allocate her budget in a way that maximizes the marginal utility she receives from each dollar she spends. This is known as the "utility bang-for-the-buck rule."
To apply this rule, we need to compare the marginal utility per dollar spent on each good. The marginal utility per dollar spent is calculated by dividing the marginal utility of the good by its price. If the marginal utility per dollar spent is higher for one good than for the other, Sam should allocate more of her budget to that good.
In this case, the marginal utility per dollar spent on food is 50 utils / $10 per unit = 5 utils/$. The marginal utility per dollar spent on clothing is 25 utils / $10 per unit = 2.5 utils/$.
Since the marginal utility per dollar spent on food is higher than the marginal utility per dollar spent on clothing, Sam should allocate more of her budget to food. This means that the price of food per unit must be less than the price of clothing per unit in order for Sam to maximize her utility.
Hence, to maximize her utility the price of food per unit must be $2.5.
To learn more about utility from the given link:
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