Luis Is Consuming His Optimal Consumption Bundle of Pizza and Tacos

question 165

Multiple Choice

Luis is consuming his optimal consumption bundle of pizza and tacos. The marginal utility associated with the last pizza he consumes is 1 util, and the marginal utility associated with the last taco is 3 utils. What must be the relative price of pizza in terms of tacos?

• A) 0.33
• B) 1
• C) 3
• D) The relative price is undefined.

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Definitions:

LIFO

Last In, First Out, an inventory valuation method where the most recently produced items are recorded as sold first.

Absorption Costing

A method of accounting in which all the costs associated with the production of a product are absorbed by that product. This includes direct costs like materials and labor, as well as fixed and variable overhead.

Variable Costing

An accounting method that only includes variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs.

Net Operating Income

The income generated from normal business operations, calculated by deducting operating expenses from gross income.