Basil maximizes his utility by allocating his budget between tea and crumpets.If the marginal utility of his last cup of tea was 24 units of utility and that of his last crumpet was 6 units of utility,then which of the following is true?
A)The price of tea is six times the price of crumpets.
B)The price of crumpets is four times the price of tea.
C)The prices of tea and crumpets are equal.
D)The price of tea is four times the price of crumpets.
E)The price of crumpets is six times the price of tea.

Question

Quizplus · Accepted Answer

To maximize utility, the consumer should allocate their budget so that the ratio of the marginal utility to the price of each good is equal. Given the marginal utilities, the statement that the price of tea is four times the price of crumpets would make this ratio equal for both goods, assuming Basil is maximizing his utility efficiently.

Basil Maximizes His Utility by Allocating His Budget Between Tea