Jeremy Maximizes Utility by Consuming Both Iced Tea and Coffee

question 59

Multiple Choice

Jeremy maximizes utility by consuming both iced tea and coffee.Iced tea is priced at $1.50 per bottle and coffee at $2.00 per 16-ounce cup.Which of the following marginal utility pairs is inconsistent with Jeremy's consumer equilibrium at these prices?

• A) MU of iced tea = 3; MU of coffee = 4
• B) MU of iced tea = 4; MU of coffee = 3
• C) MU of iced tea = 6; MU of coffee = 8
• D) MU of iced tea = 3/4; MU of coffee = 1

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Definitions:

Expected Inflation

The anticipated rate at which the general level of prices for goods and services will rise over a period.

Internal Rate

Often referred to as the internal rate of return (IRR), it is the discount rate that makes the net present value (NPV) of all cash flows from a particular project zero.

Net Present Value

A financial metric used to evaluate the profitability of an investment or project, calculated by subtracting the present value of cash outflows from the present value of cash inflows over a period of time.

Payback Period

The amount of time it takes for an investment to generate cash flows sufficient to recover its initial cost.