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Gillian is consuming her optimal consumption bundle of peanuts and raisins. The marginal utility associated with the last peanut she consumes is 4 utils, and the marginal utility associated with the last
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Gillian is consuming her optimal consumption bundle of peanuts and raisins. The marginal utility associated with the last peanut she consumes is 4 utils, and the marginal utility associated with the last raisin is 2 utils. What must be the price of peanuts relative to that of raisins?

User FrIT
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Answer: The price of peanuts realitve to that of raisins must be 2.

Explanation: Mathematically, relative prices are defined as:

Relative price of Good A with respect to Good B = Price of A / Price of B

So: Relative price of peanuts respect to raisins = Price of peanuts / Price of raisins

...

Relative price of peanuts respect to raisins = 4 / 2 = 2.

User Tedris
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