Jamie's Marginal Utility from Muffins and from Doughnuts (In Utils)

question 103

Multiple Choice

Jamie's marginal utility from muffins and from doughnuts (in utils) is shown below. Jamie spends a total of $8 on muffins and/or doughnuts every morning. The price of each muffin is $2 and the price of each doughnut is $1. $$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Muffins } \\\text { Per Day }\end{array} & \begin{array} { c } \text { Marginal Utility } \\\text { Per Muffin }\end{array} & \begin{array} { c } \text { Doughnuts } \\\text { Per Day }\end{array} & \begin{array} { c } \text { Marginal Utility } \\\text { Per Doughnut }\end{array} \\\hline 1 & 40 & 2 & 20 \\\hline 2 & 30 & 4 & 15 \\\hline 3 & 20 & 6 & 10 \\\hline\end{array}$$ What is Jamie's optimal combination of muffins and doughnuts each day?

• A)1 muffin, 6 doughnuts
• B)2 muffins, 4 doughnuts
• C)3 muffins, 2 doughnuts
• D)4 muffins, zero doughnuts

---

Definitions:

EBIT

Earnings Before Interest and Taxes, a measure of a company's profitability that excludes the effect of financial and tax decisions.

Depreciation

The allocation of the cost of an asset over its useful life, reflecting the decrease in value due to use and age.

Terminal Growth Rate

The rate at which a company's free cash flow is expected to grow at indefinitely, used in the discounted cash flow analysis to estimate a company's value.

Plowback Ratio

The proportion of earnings retained by a business, rather than paid out as dividends, to reinvest in its core activities.