Joe has $55 to spend on apples and oranges. Given the information in the following table, is Joe maximizing utility?
Total
Marginal
Utility of Last
Product
Price
Quantity
Utility
Unit
Apples
$0.50
50 lbs.
1,000
20
Oranges
$0.75
40 lbs.
1,200
30
units of utility per dollar.
Joe's marginal utility per dollar spent on apples is
Joe's marginal utility per dollar spent on oranges is units of utility per dollar.
The total amount of his income Joes spends on apples and oranges is
Is Joe maximizing his utility?
dollars.
A. No, Joe is not maximizing his utility. If he spent more on oranges he could gain greater satisfaction per dollar spent.
B. Yes, Joe is maximizing his total utility. Marginal utility per dollar spent on each good is equal, and he is spending his entire budget.
C. No, marginal utility per dollar spent on each good is equal, but Joe has some money left in his budget which could be used to increase his utility.
D. Yes, Joe is maximizing his total utility. Marginal utility per dollar spent on each good is equal, and he has some of his income that he does not spend on apples or oranges that he may save.
