📚 Learning Guide
Maximizing Utility with Budgets
medium

Maria has a budget of $20 to spend on fruit. She can buy apples for $2 each and bananas for $1 each. If she derives a marginal utility of 6 from each apple and 3 from each banana, how should Maria allocate her budget to maximize her utility?

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
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Choose the Best Answer

A

Buy 10 bananas and 0 apples.

B

Buy 5 apples and 0 bananas.

C

Buy 4 apples and 4 bananas.

D

Buy 2 apples and 8 bananas.

Understanding the Answer

Let's break down why this is correct

Answer

To maximize her utility, Maria should compare the marginal utility per dollar spent on each fruit. For apples, the marginal utility is 6 and they cost $2 each, so the utility per dollar is 3 (6 divided by 2). For bananas, the marginal utility is 3 and they cost $1 each, giving her a utility per dollar of 3 as well (3 divided by 1). Since both fruits provide the same utility per dollar, Maria can choose to buy any combination of apples and bananas as long as she stays within her $20 budget. For example, if she buys 5 apples for $10 and 10 bananas for $10, she will maximize her fruit intake and enjoy the same level of utility per dollar.

Detailed Explanation

Maria gets the most satisfaction by buying a mix of apples and bananas. Other options are incorrect because This choice focuses only on bananas; Here, Maria spends all her money on apples.

Key Concepts

Maximizing Utility
Budget Constraints
Marginal Utility
Topic

Maximizing Utility with Budgets

Difficulty

medium level question

Cognitive Level

understand

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