Jamie's marginal utility from muffins and from doughnuts (in utils)is shown in the accompanying table. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1. $$\begin{array} { | c | r | r | r | }
\hline \begin{array} { c }
\text { Mufins } \
\text { Per Day }
\end{array} & \begin{array} { c }
\text { Marginnl Utility } \
\text { Per Muftin }
\end{array} & \begin{array} { c }
\text { Deughnuts } \
\text { Per Day }
\end{array} & \begin{array} { c }
\text { Marginal Utility } \
\text { Per Deughnut }
\end{array} \
\hline 1 & 40 & 2 & 20 \
\hline 2 & 30 & 4 & 15 \
\hline 3 & 20 & 5 & 10 \
\hline
\end{array}$$ What is Jamie's optimal combination of muffins and doughnuts each day?
A)1 muffin, 6 doughnuts
B)2 muffins, 4 doughnuts
C)3 muffins, 2 doughnuts
D)4 muffins, zero doughnuts

Question

Jamie's marginal utility from muffins and from doughnuts (in utils)is shown in the accompanying table. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1. $$\begin{array} { | c | r | r | r | } 
\hline \begin{array} { c } 
\text { Mufins } \
\text { Per Day }
\end{array} & \begin{array} { c } 
\text { Marginnl Utility } \
\text { Per Muftin }
\end{array} & \begin{array} { c } 
\text { Deughnuts } \
\text { Per Day }
\end{array} & \begin{array} { c } 
\text { Marginal Utility } \
\text { Per Deughnut }
\end{array} \
\hline 1 & 40 & 2 & 20 \
\hline 2 & 30 & 4 & 15 \
\hline 3 & 20 & 5 & 10 \
\hline
\end{array}$$ What is Jamie's optimal combination of muffins and doughnuts each day?
A)1 muffin, 6 doughnuts
B)2 muffins, 4 doughnuts
C)3 muffins, 2 doughnuts
D)4 muffins, zero doughnuts

Quizplus · Accepted Answer

To maximize utility, Jamie should equalize the marginal utility per dollar spent on muffins and doughnuts. The marginal utility per dollar for muffins and doughnuts can be calculated as follows: For muffins, the marginal utility per dollar at 1 muffin is 40 utils per $2 = 20 utils per dollar, and for 2 muffins, it's 30 utils per $2 = 15 utils per dollar. For doughnuts, the marginal utility per dollar at 2 doughnuts is 20 utils per $1 = 20 utils per dollar, and for 4 doughnuts, it's 15 utils per $1 = 15 utils per dollar. The combination of 2 muffins and 4 doughnuts equalizes the marginal utility per dollar at 15, fitting Jamie's budget of $8 (2 muffins * $2 + 4 doughnuts * $1 = $8).

Jamie's Marginal Utility from Muffins and from Doughnuts (In Utils)is