AB224_01Unit_4_Assignment.docx

# As she sits down to eat them a university student

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(not so healthy). As she sits down to eat them, a University student approaches her and tells her that she is doing a research project for her microeconomics course, and would like to ask Jane a few quick questions. Jane agrees and the student asks what “score” (Marginal Utility) from 1 to 100 would she give as her satisfaction level with the 1 st sandwich and the 1 st fries? After eating that order, Jane is still hungry and orders a second chicken sandwich and another fries. Again, the student asks Jane to give her new scores. Since Jane has not eaten all day, she is hungry enough to order a third round of food and again gives “scores” to the inquisitive student. Below is the University student’s completed experiment tally sheet of Jane’s marginal utility “scores” and the calculation of her marginal utility per dollar, given that each sandwich costs \$4.00 and each order of fries costs \$2.00, along with her budget of \$20. The student filled in the shaded cells based on Jane’s responses, then computed the values in the remaining cells. Using this information, answer the following questions: a. Is Jane maximizing her utility? Explain your reasoning and show any calculations. No because of two reason, one Jane is not using all of her budget because she left a \$ 2.00 balance which means her utility is not maximized. second her first sandwich and fries she don't have an equal marginal utility per dollar to access all goods, therefore; the first sandwich and fries will meet these criteria, but number 2 and 3 of each would not. The first sandwich and fries each have a MU/\$ of 2. The second sandwich has a MU/\$ of 15 when the third fries has a MU/\$ of 3. Which they don't match the second or third order. b. If Jane is not maximizing her utility, remembering the Law of Diminishing Marginal Utility, would she be better off to buy one less chicken sandwich and one more fry? Explain your reasoning and show

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any calculations. The total of utility is 308. If Jane want to buy one more less sandwich then her utility would be 172 from the two sandwiches and 76 from the third fries. The total utility for fries has dropped from 50 to 20 to 6. the law tells us that diminishing marginal utility show that the utility for fries will continue to drop. Assuming the utility for the next fries is two then the total for four fries would be the only growth to 78. add that to the 172 from the sandwiches and the total would be 250 and still be less than that of 308 it is currently.
• Spring '12
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