Refer to the following table to answer the following questions:

-Assume that strawberries cost $1 and apples cost $2.If the consumer has $8,the bundle of goods that would maximize his utility per dollar leads to a utility equal to ________ utils.
A) 49
B) 84
C) 77
D) 66
E) 46

Question

Refer to the following table to answer the following questions:
 
-Assume that strawberries cost $1 and apples cost $2.If the consumer has $8,the bundle of goods that would maximize his utility per dollar leads to a utility equal to ________ utils.
A) 49 
B) 84 
C) 77 
D) 66 
E) 46

Quizplus · Accepted Answer

To maximize utility per dollar, the consumer should choose the bundle with the highest marginal utility per dollar. The table shows that for the first unit of strawberries, the marginal utility per dollar is 10/1 = 10. For the first unit of apples, it is 15/2 = 7.5. Therefore, the consumer should choose to consume only strawberries until the marginal utility of strawberries equals the marginal utility per dollar of apples, which is when 40 strawberries have been consumed. At this point, the consumer should switch to consuming only apples until they have spent all $8. Therefore, the bundle that maximizes utility per dollar is 40 strawberries and 4 apples, which results in a total utility of 490 utils (40 x 10 + 4 x 60 = 400 + 240 = 640) and a total cost of $48 (40 x $1 + 4 x $2 = $40 + $8 = $48). Therefore, the utility per dollar is 490/48 = 10.21 utils per dollar, which is the highest among all possible bundles.

Refer to the Following Table to Answer the Following Questions