Carla spends all her income on two goods: apples and bananas. The price of an apple is $2 and the price of a banana is $1. If the marginal utility of an apple to Carla is 4 and the marginal utility of a banana is 3, she should consume

Question

Quizplus · Accepted Answer

To maximize total utility, Carla should consume more bananas and fewer apples because the marginal utility per dollar spent on bananas (3) is higher than that for apples (2). This is based on the principle of equating the marginal utility per dollar across all goods for optimal consumption.

Carla Spends All Her Income on Two Goods: Apples and Bananas