You consider yourself to be wise consumer. The marginal utility/price ratio of coffee is 12 utils per dollar. If the price of a donut is $0.75, you should only buy the donut if it gives you at least
A) 16 utils of satisfaction.
B) 9 utils of satisfaction.
C) 12 utils of satisfaction.
D) The answer cannot be determined with this information.

Question

Quizplus · Accepted Answer

To determine whether to buy a donut or not, we need to calculate the marginal utility/price ratio of the donut. Since we know the ratio for coffee is 12 utils per dollar, we need to calculate the ratio for the donut. Since the price of the donut is $0.75, we need to calculate the marginal utility of the donut as 0.75*X (where X is the marginal utility of the donut) and set this equal to 12 (the marginal utility/price ratio for coffee):
0.75*X = 12
Solving for X gives us X = 16. Therefore, we should only buy the donut if it gives us at least 16 utils of satisfaction, which is choice B.

You Consider Yourself to Be Wise Consumer