Suppose that Omars marginal utility for cups of coffee is constant at 6.5 utils
ID: 1183184 • Letter: S
Question
Suppose that Omars marginal utility for cups of coffee is constant at 6.5 utils per cup no matter how many cups he drinks. On the other hand, his marginal utility per doughnut is 10 for the first doughnut he eats, 9 for the second he eats, 8 for the third he eats, and so on (that is, declining by 1 util per additional doughnut). In addition, suppose that coffee costs $1 per cup, doughnuts cost $1 each, and Omar has a budget that he can spend only on doughnuts, coffee, or both. How big would that budget have to be before he would spend a dollar buying a first cup of coffee?Explanation / Answer
Omar will have to spend till the utility of coffee is more than the doughnut. Buys 5 doughnuts, and 4 coffees. Therefore coffee = 4.