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Marginal Utility in Class Exercise

The document provides utility data for an individual with $2.25 to spend on video games or Coke. It lists the total and marginal utility derived from consuming different quantities of each good. The individual must calculate the marginal utility per dollar for each good to determine the purchasing order that maximizes their utility. By comparing the marginal utility per dollar at each step, the individual can spend their budget in a way that gains the most total utility from their limited income.

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196 views

Marginal Utility in Class Exercise

The document provides utility data for an individual with $2.25 to spend on video games or Coke. It lists the total and marginal utility derived from consuming different quantities of each good. The individual must calculate the marginal utility per dollar for each good to determine the purchasing order that maximizes their utility. By comparing the marginal utility per dollar at each step, the individual can spend their budget in a way that gains the most total utility from their limited income.

Uploaded by

Vanish Star
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Utility Exercise Microeconomics

Marginal Utility Exercise:

Suppose you have $2.25 in income to spend on either Video Games (which cost 25 cents each), or Coke
(that costs 50 cents/can). Your total and marginal utility from various quantities of Coke and Video Games
is given below.

Amount of Utility (in Utils)


From Cokes From Video Games
Quantity Total Marginal MU/$ Total Marginal MU/$
Utility Utility Utility Utility
0 0 --- --- 0 --- ---
1 15 10
2 23 19
3 25 26
4 25 31
5 22 35
6 12 36

Step 1: Determine what good you’d buy first by calculating the Marginal Utility per dollar of the first unit
of Coke and Video Games. You’ll buy the one that gives you the highest Marginal Utility per dollar. How
much money do you have left?

Step 2: Given your purchase in Step 1, determine which good you’ll buy next by calculating the MU per
dollar. Note, for the good purchased in Step 1, you’ll need to look at the MU of the second item consumed.
How much money do you have left?

Step 3: Given your purchase in Step 2, determine which good you’ll buy next by calculating the MU per
dollar. How much money do you have left?

Step 4: Given your purchase in Step 3, determine which good you’ll buy next by calculating the MU per
dollar. How much money do you have left?

Step 5: Given your purchase in Step 4, determine which good you’ll buy next by calculating the MU per
dollar. How much money do you have left?

Step 6: Given your purchase in Step 5, determine which good you’ll buy next by calculating the MU per
dollar. How much money do you have left?

Step 7: Given your purchase in Step 6, determine which good you’ll buy next by calculating the MU per
dollar. How much money do you have left?

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