Krugman_SolMan_CH10

Krugman_SolMan_CH10 - Krugman_SolMan_CH10 11/11/04 4:02 PM...

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chapter The Rational Consumer 1. a. Al has increasing marginal utility of economics classes. Each additional class adds more to his total utility than the previous class. b. Al has constant marginal utility of volume of music. His total utility increases by 5 utils for each additional notch of volume, so his marginal utility is constant at 5 utils. c. Al has diminishing marginal utility of Friends episodes. Although additional episodes increase his total utility, they do so less and less. That is, his marginal utility declines. d. Al has diminishing marginal utility of marshmallows. For a certain range, addi- tional marshmallows add to his total utility, so total utility increases. But total utility increases by less and less. In fact, total utility eventually begins to decline. In other words, his marginal utility becomes smaller and smaller and eventually becomes negative. 2. After you have taken the first newspaper, the marginal utility of the second news- paper is zero: you don’t learn any more news by having two copies of the same paper instead of just one. So once you have paid for the vending machine to open, you will only take one paper. For soda, on the other hand, marginal utility is positive: after you have drunk the first soda, the second will still give you more utility. It will give you less utility than the first soda—that is, there is diminishing marginal utility—but the marginal utility of the second soda is still positive. If the vending machine allowed you to take more than one soda at a time after paying for only one, you would. So the soda vending machine has to be designed to prevent you from taking more than one soda, and it does so by dispensing only one soda at a time. 3. a. If Brenda consumes 2 cups of coffee, the consumption bundles that are relevant are those in the accompanying table. The first two columns are the bundles, and the third column shows the total utility of each bundle. The fourth column calcu- lates her marginal utility of bagels. 85 Consumption bundle Quantity of Quantity of Total utility Marginal utility bagels coffee (cups) (utils) per bagel (utils) 02 2 8 20 12 4 8 8 22 5 6 6 32 6 2 4 42 6 6 10 Krugman_SolMan_CH10 11/11/04 4:02 PM Page 85
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b. The accompanying diagram shows Brenda’s marginal utility of bagels. Since Brenda’s marginal utility curve of bagels is downward sloping, she has diminishing marginal utility of bagels. 4. a. The first two columns in the accompanying table list the bundles that lie on Brenda’s budget line, and the third column shows her total utility from these bundles. Marginal utility curve 1234 0 20 18 16 14 12 10 8 6 4 2 Marginal utility per bagel (utils) Quantity of bagels 86 CHAPTER 10 THE RATIONAL CONSUMER Consumption bundle Quantity of Quantity of Total utility bagels coffee (cups) (utils) 044 0 135 4 225 6 315 4 404 0 Of all the bundles on her budget line, the bundle that contains 2 bagels and 2 cups of coffee gives Brenda the highest total utility. So this is her optimal bundle.
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Krugman_SolMan_CH10 - Krugman_SolMan_CH10 11/11/04 4:02 PM...

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