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Answer to Question #78007 in Microeconomics for kaur Raj

Question #78007
Suppose that Omar’s marginal utility for cups of coffee is constant at 2.5 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?



Expert's answer
Omar will buy doughnuts till the marginal utility of the last consumed one will greater than 2.5 utils, so their total quantity is 8. After the 8th doughnut Omar will buy the first cup of coffee.
So, total budget is
8*1+1=$9

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