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Ch.4&amp;5 HW and case study for ch.4

# Ch.4&amp;5 HW and case study for ch.4 - Managerial...

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Managerial Economics – 6005 Homework - chapters 4&5 Managerial Economics 6005 Professor Juliet Elu Chapters 4 & 5 Assignment and the case study of chapter 4 Spring 2008 Group’s Members: Joel Njenga Mohammad Aladalh EL Drame Verda Weekes

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Managerial Economics – 6005 Homework - chapters 4&5 Chapter: 4 4.1 Marginal Utility. A. Complete the following table, which describes the demand for services: Price Units Total Utility Marginal Utility Price/Marginal Utility \$80 0 0 --- --- 75 1 100 100 0.75 70 2 180 80 0.875 65 3 240 60 1.08 60 4 280 40 1.5 55 5 300 20 2.75 B. How does an increase in consumption affect marginal utility and the price/marginal utility ratio? Since marginal utility is inversely proportional to consumption, an increase in consumption would result in a decrease in marginal utility as observed above. In the table above we observe that as you increase the units consumed, the marginal utility decreases and the price/marginal utility ratio increases. C. What is the optimal level of services consumption if the marginal utility derived from the consumption of goods costs \$1 per unit? 2 is the optimal level of services consumption where the marginal utility derived from the consumption of goods costs \$1 per unit. 4.3 Law of diminishing marginal utility. Indicate whether each of the following statement us true or false. Explain why. A. The law of diminishing marginal utility states that as an individual increases consumption of a given product within a set period of time, the utility gained from consumption eventually declines. False . The law of diminishing marginal utility states that as an individual increases consumption of a given product within a set period of time, (the marginal or added utility, but not the utility itself) gained from consumption eventually declines. B. When prices are held constant, a diminishing marginal utility for consumption decreases the cost of each marginal unit of satisfaction. False. When prices are held constant, a diminishing marginal utility for consumption ( increases, but does not decrease) the cost of each marginal unit of satisfaction. C. Marginal utility measures the added satisfaction derived from a 1-unit increase in consumption, holding consumption of other goods and services constant. True . Marginal utility measures the added satisfaction derived from a 1-unit increase in consumption, holding consumption of other goods and services constant. However,
Managerial Economics – 6005 Homework - chapters 4&5 total utility measures the consumer’s overall level of satisfaction derived from consumption activities. D. When goods are relatively scarce, the law of diminishing marginal utility means that the added value of another unit of goods will be small in relation to the added value of another unit of services. True: this is as a result of the substitution factor. To a greater or lesser degree, goods and services can be substituted for one another. In this case, since the goods are scarce, the service units are bound to increase in order to achieve the same marginal utility.

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Ch.4&amp;5 HW and case study for ch.4 - Managerial...

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