Answers to Study Questions Set 5

Answers to Study Questions Set 5 - Answers to Study...

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Answers to Study Questions Set 5 Page 130 Question 1 ( Key Question ) Complete the following table and answer the questions below: Units consumed Total utility Marginal utility 0 1 2 3 4 5 6 0 10 ___ 25 30 ___ 34 10 8 ___ ___ 3 ___ a. At which rate is total utility increasing: a constant rate, a decreasing rate, or an increasing rate? How do you know? b. “A rational consumer will purchase only 1 unit of the product represented by these data, since that amount maximizes marginal utility.” Do you agree? Explain why or why not. c. “It is possible that a rational consumer will not purchase any units of the product represented by these data.” Do you agree? Explain why or why not. Missing total utility data top – bottom: 18; 33. Missing marginal utility data, top – bottom: 7; 5; 1. (a) A decreasing rate; because marginal utility is declining. (b) Disagree. 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) Agree. This product’s price could be so high relative to the first unit’s marginal utility that the consumer would buy none of it. Page 131 Question 4
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Answers to Study Questions Set 5 - Answers to Study...

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