Shipping the Good Apples Out? Suppose apples come in two quality levels, low and high. At a store in the apple-growing region, the price of low-quality apples is $1 per pound, and the price of...

Shipping the Good Apples Out? Suppose apples come in two quality levels, low and high. At a store in the apple-growing region, the price of low-quality apples is $1 per pound, and the price of high-quality apples is $4 per pound. Johnny lives in the apple-growing region and buys 8 pounds of each type. His marginal utility of apples is 3 utils for low-quality apples and 12 utils for high-quality apples.

a. Is Johnny maximizing his utility?

b. Suppose Johnny moves to an area outside the applegrowing region. Shipping the apples to his new area adds $2 to the price of a pound of apples, for both low-quality and high-quality apples. To simplify continues to buy 8 pounds of apples of each type, is he maximizing his utility? If not, how should he change his mix of high- and low-quality apples?

c. What are the implications for the mix of highquality and low-quality apples in apple-growing areas and other regions? matters, assume Johnny’s income increases by an amount large enough to fully offset the higher prices of apples. In other words, he can still afford the original bundle of 8 pounds of each type of apples. If he