Question

Illustrate Sue's new budget constraint and indifference curve in a diagram from the data in Problem F-3. Illustrate also the utility-maximizing combination of goods.

Short answer

A student decides to attend Western State University.

Step-by-step solution

Introduction

Consumer Optimum can be described as a set of product options that maximizes the consumer's degree of happiness while money is limited.

Explanation

A student will choose Western State University over Eastern State University because of the university's better reputation. Western State University charges a greater tuition than Eastern State University.

Conclusion

One thing to keep in mind is that the consumer will always buy the things that have the highest marginal utility per dollar spent. A student's marginal utility per dollar spent at Western State University is higher here. As a result, a student decides to attend Western State University.