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27 March, 20:04

Bill is trying to decide what combination of bananas and apples to buy. A banana costs half as much as an apple. If no apples are purchased, he can buy 6 bananas. If no bananas are purchased, he can buy 3 apples. How many apples and bananas will Bill purchase to maximize his total utility?

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  1. 27 March, 20:15
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    To maximize utility, Bill can will buy one banana and one apple.

    Explanation:

    Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions.

    For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction.

    The theory of Utility maximization highlights two fators

    combination of goods Highest satisfaction that is cost effective

    if a banana cost half as much as an apple,

    Cost of banana = cost of apple/2

    cost of apple - cost of banana * 2

    Assuming the cost of one banana is $1

    The cost of buying 6 bananas = 6*$1 = $6

    the same $6 can only buy 3 apples

    Therefore the price of apples is $2

    If the total amount available = $6,

    It can purchase one banana and one apple.
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