Suppose that each week Henry buys 12 peaches and 3 apples at his local farmer's market. Both kinds of fruit cost $1 each. From this we can infer that: A)Henry is not maximizing his utility. B)if Henry is maximizing his utility, then his marginal utility from the 12^th peach he buys must be greater than his marginal utility from the 3^rd apple he buys. C)if Henry is maximizing his utility, then his marginal utility from the 12^th peach he buys must equal his marginal utility from the 3^rd apple he buys. D)for Henry the law of diminishing marginal utility does not apply to peaches.

Question

Quizplus · Accepted Answer

If Henry is maximizing his utility, then he will allocate his budget such that the marginal utility of the last dollar spent on peaches is equal to the marginal utility of the last dollar spent on apples. If this were not the case, then he could increase his utility by reallocating his purchases towards the fruit with the higher marginal utility. Therefore, option C is correct. Option A is incorrect because we do not have enough information to determine whether or not Henry is maximizing his utility. Option B is incorrect because it is possible that the marginal utility of the last peach purchased is less than the marginal utility of the last apple purchased, but as long as the two marginal utilities are equal, Henry is still maximizing his utility. Option D is incorrect because the law of diminishing marginal utility applies to all goods and services.

Suppose That Each Week Henry Buys 12 Peaches and 3