The ratio of the marginal utility of coffee to the marginal utility of donuts is four for an individual maximizing utility. This implies that
A) a donut is four times more valuable than a cup of coffee.
B) the coffee to donuts price ratio is one to four.
C) the coffee to donuts price ratio is four to one.
D) this person always eats donuts with coffee.

Question

Quizplus · Accepted Answer

The ratio of the marginal utility of coffee to the marginal utility of donuts being four implies that the individual values the last unit of coffee consumed four times as much as the last unit of donuts consumed. In the context of utility maximization and assuming prices are constant, this ratio reflects the relative prices of coffee to donuts, indicating that the price of coffee is four times the price of donuts for the consumer to be in equilibrium.

The Ratio of the Marginal Utility of Coffee to the Marginal