Question

Every day Melanie spends her lunch money consuming apples, at $1 each, and oranges, at $2 each. At her current level of consumption, Melanie's marginal utility of apples is 12 and her marginal utility of oranges is 18. If she has already spent all of her lunch money, how should Melanie change her consumption decision to maximize utility?:

a) She should consume more apples and fewer oranges
b) She should consume more oranges and fewer apples
c) She should consume an equal number of apples and oranges
d) She should stop consuming both apples and oranges

Answer 1

Melanie should consume fewer apples and more oranges to maximize utility.

Step-by-step explanation:

A rational consumer would only purchase additional units of some product as long as the marginal utility exceeds the opportunity cost. In the case of Melanie, her marginal utility is 12 for apples and 18 for oranges. Since Melanie has already spent all her lunch money, she should change her consumption decision to maximize utility by consuming more of the product with the higher marginal utility. Therefore, Melanie should consume fewer apples and more oranges.