Question

Bill is trying to decide what combination of bananas and apples to buy. A banana costs half as much as an apple. If no apples are purchased, he can buy 6 bananas. If no bananas are purchased, he can buy 3 apples. How many apples and bananas will Bill purchase to maximize his total utility?

Answer 1

Answer:

To maximize utility, Bill can will buy one banana and one apple.

Explanation:

Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.

For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.

The theory of Utility maximization highlights two fators

• combination of goods
• Highest satisfaction that is cost effective

if a banana cost half as much as an apple,

Cost of banana = cost of apple/2

cost of apple - cost of banana × 2

Assuming the cost of one banana is $1

The cost of buying 6 bananas = 6×$1 = $6

the same $6 can only buy 3 apples

Therefore the price of apples is $2

If the total amount available = $6,

It can purchase one banana and one apple.