Question

Demand curves slope downward because, other things held equal,a. An increase in a product’s price lowers MU.b. A decrease in a product’s price lowers MU.c. A decrease in a product’s price raises MU per dollar and makes consumers wish to purchase more units.d. An increase in a product’s price raises MU per dollar and makes consumers wish to purchase more units.

Solutions

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The following table has been constructed based on the information given:

1. The marginal utility for a cup of coffee is $1.5$ utils per cup no matter many how many cups Omar drinks.
2. The marginal utility for a doughnut decreases by $1$ util as an additional doughnut is consumed.
3. The coffee costs $\1$ per cup and doughnuts cost $\1$ each.

The marginal utility per dollar for both doughnuts and coffee is calculated by dividing MU by the respective price of the commodity.