Bob views apples and oranges as perfect substitutes in his consumption, and MRS = 1 for all combinations of the two goods in his indifference map. Suppose the price of apples is $2 per pound, the price of oranges is $3 per pound, and Bob's budget is $30 per week. What is Bob's utility maximizing choice between these two goods?
A) 4 pounds of apples and 6 pounds of oranges
B) 5 pounds of apples and 5 pounds of oranges
C) 10 pounds of oranges and no apples
D) 15 pounds of apples and no oranges
E) none of the above

Question

Quizplus · Accepted Answer

Since Bob views apples and oranges as perfect substitutes with a marginal rate of substitution (MRS) of 1, he will maximize his utility by spending his entire budget on the cheaper of the two goods, which are apples at $2 per pound. With a $30 budget, he can buy 15 pounds of apples.

Bob Views Apples and Oranges as Perfect Substitutes in His