Question

Where did you get the 1.5 in the "marginal utility per dollar for the doughnut is greater than the marginal utility per dollar for the cup of coffee (11>1.5)"? Shouldn't it be 11 > 3.5?

Answer 1

This is because donuts have a higher marginal utility per dollar for the first nine purchases but at the tenth purchase the marginal utility per dollar for a donut is less than that of a coffee making him purchase a coffee