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?

Question

Trystan Morrow

Business

28 July, 13:09

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?

+2

Answers (1)

Know the Answer?

Cecilia Mays · Answer 1

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.