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.Suppose the price of an apple is $0.10, while the price of a Reese's Peanut Butter Cup is $0.25.To maximize her total utility, assuming that the goods are divisible, she would:
A) consume more Reese's Butter Cups and fewer apples.
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

In order to maximize total utility, Sally should consume more of the good with a higher marginal utility per dollar spent and less of the good with a lower marginal utility per dollar spent.

The marginal utility per dollar spent on an apple is 6 / $0.10 = 60, while the marginal utility per dollar spent on a Reese's Peanut Butter Cup is 8 / $0.25 = 32.

Therefore, she should consume more apples and fewer Reese's Peanut Butter Cups to increase her total utility.

Sally Garcia Devotes All of Her Income to the Consumption