Highest Marginal Utility
Chapter 06 Consumer Behavior
QUESTIONS
1. Complete the following table and answer the questions below: LO1
a. At which rate is total utility increasing: a constant rate, a decreasing rate, or an increasing rate? How do you know?
b. “A rational consumer will purchase only 1 unit of the product represented by these data since that amount maximizes marginal utility.” Do you agree? Explain why or why not.
c. “It is possible that a rational consumer will not purchase any units of the product represented by these data.” Do you agree? Explain why or why not.
Answer: Missing total utility data, top – bottom: 18; 33. The missing total utility for the second unity can be found by adding the marginal utility (change in utility) to the total utility for the first unit. By consuming the second unit, 8 more units of utils are added; thus total utility is 18 (= 10 + 8). Missing marginal utility data, top – bottom: 7; 5; 1. The missing marginal utility values are found by subtracting the total utility for the previous unit consumed from the total utility of the unit with the missing value (the change in utility). The marginal utility for the third unit is 7, which equals 25 (total utility for the third unit) minus 18 (total utility for the second unit).
(a) A decreasing rate; because marginal utility is declining.
(b) Disagree. The marginal utility of a unit beyond the first may be sufficiently great (relative to product price) to make it a worthwhile purchase. Consumers are interested in maximizing total utility, not marginal utility.
(c) Agree. This product’s price could be so high relative to the first unit’s marginal utility that the consumer would buy none of it.
2. Mrs. Simpson buys loaves of bread and quarts of milk each week at prices of $1 and 80 cents, respectively. At present she is buying these products in amounts such that the marginal utilities from the last units purchased of the two products are 80 and 70 utils, respectively. Is she buying
QUESTIONS
1. Complete the following table and answer the questions below: LO1
a. At which rate is total utility increasing: a constant rate, a decreasing rate, or an increasing rate? How do you know?
b. “A rational consumer will purchase only 1 unit of the product represented by these data since that amount maximizes marginal utility.” Do you agree? Explain why or why not.
c. “It is possible that a rational consumer will not purchase any units of the product represented by these data.” Do you agree? Explain why or why not.
Answer: Missing total utility data, top – bottom: 18; 33. The missing total utility for the second unity can be found by adding the marginal utility (change in utility) to the total utility for the first unit. By consuming the second unit, 8 more units of utils are added; thus total utility is 18 (= 10 + 8). Missing marginal utility data, top – bottom: 7; 5; 1. The missing marginal utility values are found by subtracting the total utility for the previous unit consumed from the total utility of the unit with the missing value (the change in utility). The marginal utility for the third unit is 7, which equals 25 (total utility for the third unit) minus 18 (total utility for the second unit).
(a) A decreasing rate; because marginal utility is declining.
(b) Disagree. The marginal utility of a unit beyond the first may be sufficiently great (relative to product price) to make it a worthwhile purchase. Consumers are interested in maximizing total utility, not marginal utility.
(c) Agree. This product’s price could be so high relative to the first unit’s marginal utility that the consumer would buy none of it.
2. Mrs. Simpson buys loaves of bread and quarts of milk each week at prices of $1 and 80 cents, respectively. At present she is buying these products in amounts such that the marginal utilities from the last units purchased of the two products are 80 and 70 utils, respectively. Is she buying