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Question: Given total utility (TU) calculate marginal utility (MU) and the marginal utility and the marginal utility per money spent ( MU/P) and answer the questions below for good X and good Y (Take your calculations to the nearest tenth, one decimal point.)  Given the price of good X is $2.00 and the price of good Y is $1.00.

18 Oct 2022,8:02 PM

 

Answer the 3 questions below.  Question #1 is worth 10 points, question #2 is worth 4 points, and question #3 is worth 6 points.  The total assignment is worth 20 points.

  1. Given the total utility (TU) calculate the marginal utility (MU) and answer the questions  

       below.

 

   QUANTITY                              TOTAL UTILITY (TU)           MARGINAL UTILITY (MU)

            0                                                 0                                                  —

            1                                                25

            2                                                45

            3                                                60

            4                                                70

            5                                                75

            6                                                75

            7                                                68

            8                                                57

  1. when marginal utility is positive total utility is (increasing or decreasing): _____________________

 

  1. when marginal utility is negative total utility is (increasing or decreasing): _____________________

 

  1. when total utility is maximized marginal utility equals: ________________

 

  1. state at what quantity the law of diminishing marginal utility applies:  _______________

 

  1. if a consumer knows consuming a good will give them disutility will they consume the good (yes or no)  _____________

 

 

2.  Given total utility (TU) calculate marginal utility (MU) and the marginal utility and the marginal utility per money spent ( MU/P) and answer the questions below for good X and good Y (Take your calculations to the nearest tenth, one decimal point.)  Given the price of good X is $2.00 and the price of good Y is $1.00.

 

QUANTITY of GOOD X      TU       MU      MU/P   QUANTITY of GOOD Y   TU      MU        MU/P

                   0                       0          __        __                           0                   0         __           __

                   1                      25                                                    1                 10

                   2                      40                                                    2                 18

                   3                      50                                                    3                 25       

                   4                      55                                                    4                 30

                   5                      53                                                    5                 34      

  1. if the consumer has $10 total to spend on both good X & good Y how many units of good X ___________ and good Y ___________ will be consumed?      
  2. at the quantities chosen above is the consumer at consumer equilibrium? ( yes or no)  _________________

 

3.  Behavioral economics assumes that individuals make rational decisions.  The brain allows individuals to make decisions without having perfect information.  Given below are 7 definitions identify each as an example of:  sunk costs, anchoring, loss aversion and framing, familiarity, status quo, overconfidence, or mental accounting.

 

a.  people who prefer to drive rather than fly because they think it is safer ________________

 

b.  the value individuals place on earning money as opposed to finding in a parking lot _________________

 

c.  when individuals hold on to an older car because they just got the car repaired and purchased new tires  _______________

 

 

 

Expert answer

 

EXAMPLE ANSWER

Chapter #7 Demand Consumer Choice Examples.
Given below is a consumer’s total utility (TU) for good X.
Calculate the consumer’s marginal utility for good X: MU = the change in TU / the change in quantity consumed.
TU at the quantity consumed of zero, is zero. MU will begin at the quantity of 1. You can see that TU and MU are the same for the quantity consumed of 1 unit of good X. You can calculate TU for good X by adding the MU up to a specific quantity. For example: the TU at the quantity of 3 (can be calculated by adding the MU up to the quantity of 3; 26 + 20 +16 = TU of 62 at the quantity of 3). When TU is increasing MU is positive; and when TU is
decreasing MU is negative. Negative marginal utility represents disutility.
Quantity of Good X TU MU
0 0 X
1 26 26
2 46 20
3 62 16
4 73 11
5 78 5
6 70 -2
In the chart below I added good Y and the price of good X and good Y.
Quantity of Good X TU MU MU/P Quantity of Good Y TU MU MU/P
0 0 X X 0 0 X X
1 26 26 13 1 40 40 8
2 46 20 10 2 70 30 6
3 62 16 8 3 90 20 4
4 73 11 5.5 4 100 10 5
5 78 5 2.5 5 93 -7 -1.4
6 70 -2 -1 6 80 -13 -2.6
Given: The price of good X is $2.00 and the price of good Y is $5.

 

Consumers will maximize their utility when the MU per $ spent is the same for two or more
goods. For example: MU/P for good X = MU/P for good Y. This is also referred to as
consumer equilibrium. We can see the consumer is at consumer equilibrium when they consume 3 units of good X (MU/P = 8) and 1 unit of good Y (MU/P = 8). In the above example the consumer will spend their money on the goods that give them the greatest satisfaction per money spent (MU/P).

 

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