If Ty's marginal utility for a cup of coffee is 20 and his marginal utility of a donut is 10, then: A. coffee should be his next purchase. B. they should both be purchased. C. the donut should be his next purchase. D. price information is also needed to determine what should be purchased next.

Question

Danielle Bird

Business

16 November, 19:24

If Ty's marginal utility for a cup of coffee is 20 and his marginal utility of a donut is 10, then: A. coffee should be his next purchase. B. they should both be purchased. C. the donut should be his next purchase. D. price information is also needed to determine what should be purchased next.

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Answers (1)

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Kailee Rice · Answer 1

D. Price information is also needed to determine what should be purchased next

Explanation:

Utility refers to the amount of satisfaction derived upon consumption of unit of a product.

Marginal utility refers to the addition to total utility when an additional unit of a product is consumed.

The decision concerning a choice between two products, would be taken with respect to their respective utilities derived per unit of a common unit i. e price, expressed in dollars.

The product which provides a higher marginal utility per unit of dollar would be preferred for purchase.

In the given case, the marginal utility of a cup of coffee is greater than the marginal utility of a donut. While deciding which unit of the two should be purchased, the price of both is required to arrive at a decision.

So, marginal utility per unit of dollar spent is required to be computed in the given case.