Ch19Assignment2

# Ch19Assignment2 - schedule will not purchase any units 3 a...

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Microeconomics Assignment #2 (Ch. 19), p. 370 - #1,3,4 1. a. Total utility is increasing at a decreasing rate. We know this, because marginal utility is declining. b. I disagree with the statement that “A rational consumer will only purchase 1 unit of the product represented by these data, since that amount maximizes marginal utility”. This is because 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. Yes, this is possible. The statement is true. The individual will buy no units if the utility from each unit is smaller than the price. Therefore for any price above \$10 a rational consumer with the given utility
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Unformatted text preview: schedule will not purchase any units. 3. a. 4 units of A, 3 units of B, 3 units of C, and no units of D b. Ricardo will choose to save \$4.00 c. 36/\$18 = 12/\$6 = 8/\$4 = 2/\$1. The marginal utility per dollar of the last unit of each product purchased is 2. 4. I would buy 2 units of X and 5 units of Y. Marginal utility of last dollar spent will be equal at 4 (= 8/\$2 for X and 4/\$1 for Y) and the \$9 income will be spent. Total utility = 48 (= 10 + 8 for X plus 8 + 7 + 6 + 5 + 4 for Y). When the price of X falls to \$1, the quantity of X demanded increases from 2 to 4. Total utility is now 58 (= 10 + 8 + 6 + 4 for X plus 8 + 7 + 6 + 5 + 4 for Y) Demand schedule: P = \$2; Q = 2. P = \$1; Q = 4....
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