Question

Assume that strawberries cost $1 and apples cost $2. Which of the following combinations of strawberries and apples satisfies the optimal consumption rule? a. 2 strawberries and 4 apples. b. 6 strawberries and 5 apples. c. 5 strawberries and 5 apples. d. 3 strawberries and 2 apples. e. 6 strawberries and 7 apples.

Answer 1

Answer:

Option C. 5 strawberries and 5 apples

Step-by-step explanation:

The given question is incomplete ; complete question attached herewith.

Cost of strawberries and apples = $1 and $2

Marginal utility for strawberries

Strawberry consumed    Total utility    Marginal utility

0                                               0                     0

1                                                7                 (7 - 0) ÷ 1 = 7

2                                              13               (13 - 7) ÷ 1 = 6

3                                              18               (18 - 13) ÷ 1 = 5

4                                              22             ( 22 - 18) ÷ 1 = 4

5                                              25             (25 - 22) ÷ 1 = 3

6                                              27              (27 - 25) ÷ 1 = 2

7                                             28               (28 - 27) ÷ 1 = 1

For apples,

Apples consumed          Total utility    Marginal utility

0                                               0                     0

1                                                14                (14 - 0) ÷ 1 = 14

2                                              26              (26 - 14) ÷ 1 = 12

3                                              36              (36 - 26) ÷ 1 = 10

4                                              44             (44 - 36) ÷ 1 = 12

5                                              50             (50 - 44) ÷ 1 = 6

6                                              54              (54 - 50) ÷ 1 = 4

7                                              56              (56 - 54) ÷ 1 = 2

Now from the formula,

$\frac{\text{Marginal utility of strawberry}}{\text{Price of strawberry}}=\frac{\text{Marginal utility of apples}}{\text{Price of apples}}$

From the table we find at strawberry consumed = 5 , and apples consumed = 5

The ratio of marginal utility and price are same.

$\frac{\text{Marginal utility of strawberry}}{\text{Price of strawberry}}=\frac{3}{1}=3$

$\frac{\text{Marginal utility of apples}}{\text{Price of apples}}=\frac{6}{2}=3$

Therefore, Option C. 5 strawberry and 5 apples will be the answer.