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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Hussein Trawi · Accepted Answer

Final Answer : C, Explanation :  To maximize utility, consumers should allocate their budget in a way that the marginal utility per dollar spent on each good is equal. Here, the marginal utility per dollar for apples is 6/0.10 = 60, and for Reese's Peanut Butter Cups, it's 8/0.25 = 32. Since the marginal utility per dollar is higher for apples, Sally should consume more apples and fewer Reese's Peanut Butter Cups to maximize her total utility.

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