Bianca consumes apples and bananas and is in consumer equilibrium. The marginal utility of the last apple is 10 and the marginal utility of the last banana is 20. If the price of an apple is $0.50, then what is the price of a banana?
A) $0.10
B) $0.25
C) $0.50
D) $1.00

Question

Quizplus · Accepted Answer

In consumer equilibrium, the ratio of the marginal utility to price is equal for all goods. Therefore, (MU of apple / Price of apple) = (MU of banana / Price of banana). Substituting the given values: (10 / 0.50) = (20 / Price of banana). Solving for the price of banana gives $1.00.

Bianca Consumes Apples and Bananas and Is in Consumer Equilibrium