Ch 7 HW - Stephanie Chin Microeconomics Section 26001 Ch 7...

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Stephanie Chin Microeconomics Section 26001 Ch. 7 Homework 1. a. Total utility is increasing at a decreasing rate because the marginal utility, or the change in utility, is decreasing. b. I do not agree, buying only one unit does not maximize utility because utility is slowly decreasing as more units are consumed. c. Yes it is possible that someone would not buy any of this product, because the total utility to buy only one is not that great. 2. $1(80) and $.80(70). The utility per dollar for loves of bread is 80 whereas the utility per dollar for quarts of milk is 87.5, therefore she is not buying maximum utility combination of bread and milk. She should be buying more milk because it is less expensive and it gives off more utility per dollar. 3. Ricardo and products A,B,C,D a. Ricardo will buy 4 units of A, 3 units of B, 2 units of C, and 0 units of D, because MU of each of these products divided by their respective prices is equal to 2, except product B which is close. b. Ricardo will save $13. c. The MU/Price of each of the products is about 2 except for D which she bought none of meaning that between the 3 products she maximized her utility. 4. She will buy 2 units of X and 5 units of Y. If the price of X halves then she can buy twice as many units therefore she will buy 3 units of X and 3 units of Y. Units Consumed Total Utility Marginal Utility 0 0 1 10 10 2 18 8 3 25 7 4 30 5 5 33 3 6 34 1 0 0.5 1 1.5 2 2.5 2 3 4 Quantity
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5. Time is valuable because when we spend our time working we are making
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