The utility schedule of a consumer for a brand of ice cream is shown in the table below. Use the information to answer the questions that follow: Units Cons...
Question 1 Report
The utility schedule of a consumer for a brand of ice cream is shown in the table below. Use the information to answer the questions that follow:
| Units Consumed (Q) | Total Utility (TU) | Marginal Utility (MU) |
| 0 | 0 | - |
| 1 | 10 | 10 |
| 2 | 19 | R |
| 3 | P | 6 |
| 4 | 30 | 5 |
| 5 | 31 | S |
| 6 | Q | 0 |
| 7 | 29 | -2 |
(a) Calculate the values of P,Q,and S. (8 marks).
(b) Given that the jprice of ice cream is $ 1.00 per unit, at what level of consumption is the consumer in equilibrium? Explain your answer. (3 marks).
(c) Use a graph sheet, draw the marginal utility curve.(3 marks).
(d) State the law of diminishing marginal utility. (3 marks).
Answer Details
(a) Calculation of the missing values
Marginal utility is the change in total utility:
\[MU=\frac{\Delta TU}{\Delta Q}\]
For the third unit:
\[P=TU_3=TU_2+MU_3=19+6=25\]
For the sixth unit:
\[Q=TU_6=TU_5+MU_6=31+0=31\]
For the fifth unit:
\[S=MU_5=TU_5-TU_4=31-30=1\]
Also, the marginal utility of the second unit is:
\[R=MU_2=TU_2-TU_1=19-10=9\]
| Units consumed, \(Q\) | Total utility, \(TU\) | Marginal utility, \(MU\) |
|---|---|---|
| 0 | 0 | – |
| 1 | 10 | 10 |
| 2 | 19 | 9 |
| 3 | 25 | 6 |
| 4 | 30 | 5 |
| 5 | 31 | 1 |
| 6 | 31 | 0 |
| 7 | 29 | −2 |
Therefore, \(P=25\), \(Q=31\), and \(S=1\).
(b) Consumer equilibrium
The consumer is in equilibrium at the fifth unit of ice cream. At this level, marginal utility equals price:
\[MU_5=\$1.00=P\]
The sixth unit has \(MU=0\), which is less than the price. Therefore, it will not be worthwhile to consume beyond five units.
(c) Marginal utility curve
Plot the points \((1,10)\), \((2,9)\), \((3,6)\), \((4,5)\), \((5,1)\), \((6,0)\), and \((7,-2)\), and join them with a smooth downward-sloping curve.
(d) Law of diminishing marginal utility
The law of diminishing marginal utility states that, other things being equal, as a consumer consumes successive units of a commodity, the satisfaction obtained from each additional unit decreases.
Download The App On Google Playstore
Everything you need to excel in your exams
