Answer to Question #313903 in Economics for google

Question

1.     The price of a can of soft drink is $1.25 and the marginal utility of the second can consumed is 10 Utils. The marginal utility of the third donut is 4 utils. You should only consume the third donut if the price of donut is less than or equal to ______________?

Answer 1

The optimal consumption rule says that the marginal utility per dollar spent must be the same for all goods in the bundle. For soft drink it is 10/1.25=8; so, the price of donut should be 4/8=$0.5