A consumer spends all of her income on two goods, coffee and doughnuts.She purchases coffee at 25 cents a unit with a total utility of 800 and a marginal utility of 12.Doughnuts are purchase at 75 cents a unit with a total utility of 200 and a marginal utility of 24.In order to reach consumer equilibrium, she should consume:

Question

Quizplus · Accepted Answer

To determine the optimal consumption of coffee and doughnuts, we need to calculate the marginal utility per dollar for each good.

For coffee: 
MU/Price = 12/0.25 = 48

For doughnuts: 
MU/Price = 24/0.75 = 32

Since the marginal utility per dollar is higher for coffee than for doughnuts, the consumer should consume more coffee and less doughnuts. Therefore, the best choice is A: less doughnuts and more coffee.

A Consumer Spends All of Her Income on Two Goods