Question

Joy is spending all her money on apples and berries. The price of apples are $8 each and the price of berries are $4 each. It takes joy 3 minutes to consume apples and 1 minute to consume berries. Joy’s time is worth $2 per minute. For Joy, the marginal utility from the last units consumed for apples is 40 and it is 20 for berries. For Joy, she A. should consume less of apples B. is consuming apples and berries in the optimal amounts. C. All of the other answers are incorrect D. should consume less of berries and more of apples. E. should substitute apples for berries until the marginal utility per minute is the same for both products.

Answer 1

Ans. Option E

For apples,

Total money spent on last unit = 8+ 3 minutes *2 = $14

Utility from the last unit of apple = $40

Utility per unit cost from last unit of apple = 40/14 = 2.86

For berries,

Total money spent on last unit = 4 + 1 minute * 2 = $6

Utility from the last unit of berries = $20

Utility per unit cost from the last unit of berries = 20/6 = 3.33

As utility per units cost for apple is less than berries, so, consumption of apples should be reduced and consumption of berries should be increased to reach at an equilibrium.

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