Mark's marginal utility of a third waffle is 10 units,and his marginal utility of a second slice of ham is 30 units.If Mark eats the third waffle,which of the following statements is true?
A)The price of a waffle is five times more than the price of a slice of ham.
B)The price of a waffle is less than one-fourth the price of a slice of ham.
C)The price of a waffle is less than one-third the price of a slice of ham.
D)The price of a waffle is four times more than the price of a slice of ham.
E)The price of a waffle is three times more than the price of a slice of ham.

Question

Quizplus · Accepted Answer

We can use the concept of marginal utility and the law of diminishing marginal utility to determine the relative prices of the two goods, assuming Mark is a rational consumer. 
Given that Mark's marginal utility from the third waffle is 10 units and his marginal utility from the second slice of ham is 30 units, we can infer that the price of the third waffle is lower than the price of the second slice of ham. This is because the law of diminishing marginal utility states that as a consumer consumes more of a particular good, the additional satisfaction or utility they derive from each additional unit of the good tends to decrease. In other words, Mark's marginal utility from the third waffle is lower than his marginal utility from the second slice of ham.

Assuming that Mark's rational behavior is guided by the principle of maximizing utility given a limited budget, he will continue consuming each good until the marginal utility per dollar spent on each good is equal. At this point, Mark's allocation of his budget between the two goods will be such that the price of a waffle divided by its marginal utility will be equal to the price of a slice of ham divided by its marginal utility.

Let's assume that the price of a slice of ham is $x. Then, the price of a waffle must be such that:

Price of waffle/marginal utility of waffle = x/marginal utility of ham
Price of waffle/10 = x/30
Price of waffle = (10/30) x
Price of waffle = (1/3) x

Therefore, the price of a waffle is less than one-third the price of a slice of ham, which is option C.

Mark's Marginal Utility of a Third Waffle Is 10 Units,and