Apples Oranges
Units Total Utility Units Total Utility
0 0 0 0
1 15 1 22
2 28 2 41
3 39 3 58
4 48 4 73
5 55 5 85

Assume that the price of oranges increases to $2, while the price of apples remains at $1, and Linda allocates $5 of the weekly food budget to purchasing apples and oranges. If Linda wants to maximize her utility, her new consumption bundle will consist of:_______

a. 1 apple and 2 oranges.
b. 3 apples and 1 orange.
c. 5 apples and no oranges.
d. none of the above

Note: See the attached excel file for the calculations of the ratios of the marginal utility to price of each of Apples and Oranges assuming that the price of oranges increases to $2, while the price of apples remains at $1.

For two goods, utility is maximized at a point where the ratios of the marginal utility to price of the two commodities are equal. That is, for this question, Linda will maximize her utility when we have:

Marginal Utility of Apples / Price of Apples = Marginal Utility of Oranges / Price of Oranges ............... (1)

From the attached excel file, it can be observed that equation (1) does NOT hold anywhere. Therefore, the correct option is d. none of the above.