What is UTILITY?
Define MARGINAL UTILITY and give its FORMULA.
What is the LAW OF DIMINISHING MARGINAL UTILITY?
Sketch a graph of TU and MU
Can utility be measured?
Write the utility maximizing rule formula
Write the Benefit-Cost Analysis formula
Explain why the utility maximizing rule is really a version of Benefit-Cost Analysis.
Assume that a consumer purchases a combination of products A and B. The MUa is 5 and the Pa is $5. The MUb is 6 and the Pb is $6.What should this consumer do to maximize utility?
PROBLEM 2
Assume that a consumer purchases a combination of products Y and Z. The MUy is 50 and the Py is $25. The MUz is 20 and the Pz is $5.What should this consumer do to maximize utility?
PROBLEM 3
Columns 1 through 3 in the table below show the marginal utility which a particular consumer would get by purchasing various quantities of products A, B, and C.
Unit of product
Marginal utility, A
Marginal utility, B
Marginal utility, C
First
18
39
12
Second
16
36
10
Third
14
33
9
Fourth
12
30
8
Fifth
10
27
7
Sixth
8
24
5
Seventh
6
21
3
If the prices of A, B, and C are $2, $3, and $1, respectively, and the consumer has $26 to spend on these three products, what combination of the three products should be purchased in order to maximize utility?
|
Unit of product |
Marginal utility, A |
MU/Pa |
Marginal utility, B |
MU/Pb |
Marginal utility, C |
MU/Pc |
|
First |
18 |
9 |
39 |
13 |
12 |
12 |
|
Second |
16 |
8 |
36 |
12 |
10 |
10 |
|
Third |
14 |
7 |
33 |
11 |
9 |
9 |
|
Fourth |
12 |
6 |
30 |
10 |
8 |
8 |
|
Fifth |
10 |
5 |
27 |
9 |
7 |
7 |
|
Sixth |
8 |
4 |
24 |
8 |
5 |
5 |
|
Seventh |
6 |
3 |
21 |
7 |
3 |
3 |
The consumer has $26 to spend on these three products, what combination of the three products should be purchased in order to maximize utility?
