ECONOMICS
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# ECN(1).pdf - 1 Total and marginal utility Aa Aa EL Albert...

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Unformatted text preview: 1. Total and marginal utility Aa Aa EL Albert enjoys going to see baseball games. The table that follows contains information on Albert's utility from tickets. Fill in the three missing utils. Tickets Total Utility Marginal Utility (Pairs per season) (Utils per season) (Utils per pair) 0 0 60 1 60 50 2 4,, 3 15° 4 180 20 5 200 6 210 10 —10 7 200 Explanation: Open v On the following graph, use the red points (cross symbol) to plot Albert's total utility (TU) curve if he consumes 0, 1, 2, 3, 4, 5, 6, or 7 pairs of tickets per season. Line segments will automatically connect the points. Remember to plot from left to right. Answer TOTAL UTILITY [Utils per season] TOTAL UTILITY [Utils per season] 240 Total Utility 240 21s " ‘l 216 192 192 168 168 144 144 120 120 96 96 72 72 1.8 43 24 24 4 5 6 7 8 4 5 6 7 8 TICKETS [Pairs per season] @ TICKETS [Pairs per season] Explanation: Close A If Albert doesn‘t buy any pairs of tickets, he receives zero utility, so the TU curve starts at the origin. Buying one pair of tickets gives Albert a total utility of 60 utils, so (1, 60) is a point on his TU curve. As you found previously, buying two pairs of tickets gives Albert a total utility of 110 utils, so (2, 110) is another point on his TU curve. Use the values in the table to plot the rest of the points on Albert's TU curve. 0n the following graph, use the blue points (circle symbol) to plot Albert's marginal utility (MU) curve from consuming his first seven pairs of tickets. Line segments will automatically connect the points. Remember to plot from left to right. And to plot between integers. For example, if Albert's marginal utility from increasing his consumption from one pair to two pairs of tickets is X, then you would plot a point at (1.5, X). Answer MARGINAL UTILITY [Utils per pair] MARGINAL UTILITY [Utils per pair] 70 Marginal Utility 7D 0 \/ 60 60 5|] 50 40 4D 30 30 20 20 1D 1D 0 D -10 -1D 0 1 2 3 4 5 6 '7 8 0 1 2 3 l: 5 6 '7 8 TICKETSlPairsperseason] @ m TICKETS [Pairs per season] Explanation: Close A The table shows Albert's total utility (TU) and marginal utility (MU) for his consumption of the first seven pairs of tickets. When his consumption increases from zero to one pair of tickets, his total utility increases from 0 utils to 60 utils, so his marginal utility is 60 utils - 0 utils = 60 utils. Therefore, (0.5, 60) is a point on his MU curve. Similarly, when Albert increases his consumption from one to two pairs of tickets, his total utility increases from 60 utils to 110 utils, so his marginal utility is 110 utils — 60 utils = 50 utils. Therefore, (1.5, 50) is another point on his MU curve. For Albert, increasing his consumption of tickets results in decreasing \l marginal utility. Explanation: Close A Albert's total utility for the ﬁrst six pairs of tickets is increasing but at a decreasing rate. That is, Albert‘s marginal utility from each additional pair of tickets decreases with each additional pair he consumes. This is known as the law of diminishing marginal utility and is shown graphically by a downward-sloping marginal utility curve. Whenever Albert's marginal utility is negative \I , his total utility is downward sloping. Explanation: Close A Albert's marginal utility at a given point is the same as the slope of his total utility curve. If consuming another pair of tickets increases Albert's total utility, then the marginal utility of the additional pair of tickets is positive, and Albert's total utility rises. If consuming another pair of tickets decreases Albert's total utility, then the marginal utility of the additional pair of tickets is negative, and Albert's total utility at the next point on the curve falls. Therefore, a positive marginal utility corresponds to increasing, or upward-sloping, total utility, and a negative marginal utility c0rresponds to decreasing, or downward-sloping, total utility. ...
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