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Figure: Water vs. Soda
-(Figure: Water vs. Soda) Refer to the figure. The figure represents the marginal utility Janet receives when she consumes bottled water and soda. The prices of bottled water and sodas are both $1 each. Janet has $5 to spend. What mix of bottled water and soda will maximize Janet's utility?
A) five bottles of water
B) four bottles of water and one soda
C) three bottles of water and two sodas
D) 2.5 bottles of water and 2.5 sodas.

Question

Use the following to answer questions:
Figure: Water vs. Soda 
-(Figure: Water vs. Soda) Refer to the figure. The figure represents the marginal utility Janet receives when she consumes bottled water and soda. The prices of bottled water and sodas are both $1 each. Janet has $5 to spend. What mix of bottled water and soda will maximize Janet's utility?
A) five bottles of water 
B) four bottles of water and one soda 
C) three bottles of water and two sodas 
D) 2.5 bottles of water and 2.5 sodas.

Quizplus · Accepted Answer

To maximize utility, Janet should consume a combination of water and soda where the marginal utility per dollar spent on each item is equal. From the figure, we can see that the marginal utility per dollar spent on bottled water is higher than on soda up to 3 bottles of water, after which it decreases. On the other hand, the marginal utility per dollar spent on soda is higher than on bottled water up to 2 sodas, after which it decreases. Therefore, the best combination would be three bottles of water and two sodas, where the marginal utility per dollar spent on each item is equal at approximately 4.

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