Sally Garcia devotes all of her income to the consumption of two goods, apples and Reese's Peanut Butter Cups.She has just discovered that at her current level of consumption the marginal utility of an apple is 6 and the marginal utility of a Reese's Peanut Butter Cup is 8.To maximize her total utility, she would:
A) consume more of both goods.
B) consume less of both goods.
C) consume more apples and fewer Reese's Butter Cups.
D) there is not enough information to justify a change in her current level of consumption.

Question

Quizplus · Accepted Answer

To determine the optimal consumption bundle that maximizes total utility, we need to know the prices of both goods in addition to the marginal utilities. Without information on the prices of apples and Reese's Peanut Butter Cups, we cannot assess whether Sally is consuming these goods in the optimal proportions according to the principle of equi-marginal utility (MU/P for each good should be equal). Therefore, there is not enough information to justify a change in her current level of consumption.

Sally Garcia Devotes All of Her Income to the Consumption