possible.

Maximizing Utility at the Highest Indifference Curve

Return to the situation of Lilly’s choice between paperback books and doughnuts. Say that books cost $6,

doughnuts are 50 cents each, and that Lilly has $60 to spend. This information provides the basis for the

budget line shown in Figure B2. Along with the budget line are shown the three indifference curves from

Figure B1. What is Lilly’s utility-maximizing choice? Several possibilities are identified in the diagram.

FIGURE B2 Indifference Curves and a Budget Constraint Lilly’s preferences are shown by the indifference curves.

Lilly’s budget constraint, given the prices of books and doughnuts and her income, is shown by the straight line.
522 B • Indifference Curves

Lilly’s optimal choice will be point B, where the budget line is tangent to the indifference curve Um. Lilly would have

more utility at a point like F on the higher indifference curve Uh, but the budget line does not touch the higher
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