PROBLEM SET 4

PROBLEM SET 4 - PROBLEM SET 4 Utility and Consumer Choice...

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Unformatted text preview: PROBLEM SET 4 Utility and Consumer Choice Department of Economics Professor William Stull Temple University Economics 92 A. Mikey Enjoys Life Mikey's total utility schedule for Life cereal is shown in the table below. Bowls per Day Total Utility (utils) Marginal Utility (utils)----------------- ---------------------- --------------------------- 0 _______ 1 20 _______ 2 50 _______ 3 70 _______ 4 80 _______ 5 80 _______ 6 70 _______ 7 50 1. Compute Mikey's marginal utilities and record them in the table. 2. According to the table, which bowl first produces diminishing marginal utility? _________ _ 3. According to the table, which bowl starts to make Mikey sick? __________ 4. Plot total utility against bowls consumed in Figure A. Put bowls on the horizontal axis. Connect the dots with a smooth curve. You have drawn Mikey's total utility (TU) curve. 5. Plot marginal utility against bowls in Figure B using the same horizontal scale as in Figure A. Locate each marginal utility value at the midpoint between the two relevant quantities. For example, the marginal utility of the second bowl should be plotted halfway between one and two bowls along the horizontal axis. Connect the dots with a smooth curve. You have drawn Mikey's marginal utility (MU) curve. Figure A Figure B 6. True or False: The MU curve you have just drawn illustrates the law of (eventually) diminishing marginal utility. ______________ 7. Explain this law in one sentence. _________________________________________ ____________________________________________________________________ _ ____________________________________________________________________ _ 8. According to the TU graph, approximately how many bowls should he consume per day to maximize his total utility? _________ _ 9. According to the MU graph, at what level of consumption is his marginal utility equal to zero? _________ B. Blanche DuBois Rides the Streetcar In the late 1940s Blanche Dubois enjoyed riding the streetcar in New Orleans. Her total utility function for rides was U = 5R, where U is total utility measured in utils and R is the number of rides per month....
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This note was uploaded on 04/28/2011 for the course ECON 1102 taught by Professor Tomczyk during the Spring '09 term at Temple.

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PROBLEM SET 4 - PROBLEM SET 4 Utility and Consumer Choice...

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