Suppose the price of an apple is $0.75, and the price of a banana is $0.50. If Hugh is maximizing his utility, and his marginal utility from consuming an apple is 24 utils, then his marginal utility from consuming a banana must be:
A)12 utils.
B)16 utils.
C)32 utils.
D)36 utils.

Question

Quizplus · Accepted Answer

According to the rational spending rule, Hugh should allocate his spending across apples and bananas such that MUA/PA = MUB/PB. This implies that: 24/0.75 = MUB/0.5, so MUB = 0.5 × (24/0.75)= 16.

Suppose the Price of an Apple Is $0