Sally Devotes All of Her Income to the Consumption of Apples

question 107

Multiple Choice

Sally devotes all of her income to the consumption of apples and Reese's Peanut Butter Cups.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.Assume that diminishing marginal utility applies to both apples and Reese's Peanut Butter Cups.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 Peanut Butter Cups and fewer apples.
• B)consume less of both goods.
• C)consume more apples and fewer Reese's Peanut Butter Cups.
• D)There is not enough information to justify a change in her current level of consumption.

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