Lilly Davis has $5 per week to spend on any combination of ice cream and candy. The price of an ice cream cone is $2 and the price of a candy bar is $1. The table below shows Lilly's utility values. Use the table to answer the questions that follow the table.
a. Complete the table by filling in the blank spaces.
b. Suppose Lilly purchases 2 ice cream cones and 1 candy bar. Is she consuming the optimal consumption bundle? If so, explain why. If not, what combination should she buy and why?
Definitions:
Contribution Margin Ratio
A financial ratio that measures how much of each sale is available to cover fixed costs after variable costs have been paid.
Variable Costs
Charges that fluctuate in relation to the volume of business activities or production levels.
CVP Analysis
Cost-Volume-Profit Analysis, a tool that helps understand the relationship between costs, volume of sales, and profit.
Sales Mix
The combination of products or services a company sells, often analyzed to assess profitability and resource allocation.
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