Carla is spending all her income on only two goods: apples and bananas. The price of an apple is $2 and the price of a banana is $1. If Carla's marginal utility of an apple is 4 and her marginal utility of a banana is 3, she should consume:
A) more apples and fewer bananas to maximize total utility.
B) more bananas and fewer apples to maximize total utility.
C) more apples and more bananas to maximize total utility.
D) fewer apples and fewer bananas to maximize total utility.
E) her current amounts of apples and bananas to maximize total utility.

Question

Quizplus · Accepted Answer

Carla should consume more bananas and fewer apples because the marginal utility per dollar spent on bananas (3/1 = 3) is greater than that for apples (4/2 = 2).

Carla Is Spending All Her Income on Only Two Goods