Suppose apples come in two quality levels, low quality and high quality. At a store in the apple-growing region, the price of

Question

3 years ago

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Suppose apples come in two quality levels, low quality and high quality. At a store in the apple-growing region, the price of

low-quality apples is $1 per pound, and the price of high-quality apples is $4 per pound.
Timmy lives in the apple-growing region and buys 8 pounds of each type. His marginal utility of low-quality apples is 3 utils and his marginal utility of high-quality apples is 12 utils.
1. Is Timmy maximizing his utility?

Business

1 answer:

dedylja [7] · Answer 1 · 2022-08-24T07:36:39+03:00

Answer:

Yes.

Explanation:

Given that,

Price of low-quality apples = $1 per pound

Price of high-quality apples = $4 per pound

Marginal utility of low-quality apples = 3 utils

Marginal utility of high-quality apples = 12 utils

Equimarginal:

(Marginal utility of low quality apples ÷ Price per apple) = (Marginal utility of high quality apples ÷ Price per apples)

(3 utils ÷ $1) = (12 utils ÷ $4)

3 = 3

Yes, Timmy is maximizing his utility as his equimarginal utility is same for both the goods as shown above.

Suppose apples come in two quality​ levels, low quality and high quality. At a store in the​ apple-growing region, the price of​

Suppose apples come in two quality levels, low quality and high quality. At a store in the apple-growing region, the price of