Description 
Max again stands at the Ostrich Burger 
counter.  He sees two choices on the 
menu--Ostrich burgers and Ostrich 
nuggets. He likes both, and he realizes 
that there are numerous combinations 
of burgers and nuggets he could 
consume. 

Audio Transcript

Narrator: Max has ten dollars and wants to know how to maximize his utility. He could spend all his money on O-burgers and buy five of them...or he could spend it all on O-nuggets and buy ten of them...OR...he can buy a combination of the two, for example, 3 O-burgers and 4 O-Nuggets. 

Narrator: This graph illustrates the many different combinations of Burgers and Nuggets that Max can afford to buy. This is his budget constraint. It represents his purchasing power. 

Narrator: Let's consider Max's utility curve, or more precisely, his indifference curve. The graph shows an indifference curve representing a constant utility that Max receives from various combinations of burgers and nuggets. Referring to the budget line, we see that Max can afford all the combinations between points a and b on this indifference curve. 

Narrator: Has he maximized his utility? 

Narrator: No--because at points between A and B he's not getting the most number of goods for his $10.  If Max didn’t have to worry about price he’d choose to have more of everything and be operating on a higher indifference curve.  But he is constrained by his budget. He cannot afford such a high level of utility. 

Narrator: The optimal indifference curve intercepts the budget line only once. Point C represents the highest level of utility Max can attain on his budget. To maximize his utility and get the most food for his money, Max should purchase and consume 3 O-burgers and 4 O-nuggets. 

Marge: Enjoy your lunch! 

--End--           Back