3. (2 pts.) From the information below please calculate the marginal utility tha

Question

3. (2 pts.) From the information below please calculate the marginal utility that this a. person receives from owning additional pairs of jeans. Number of Jeans Total Utility 0 150 280 360 410 460 470 Marginal Utility 0 2 4 7 b. (1 pt.) What kind of response does the marginal utility show? a. (1 pt.) On the graph below please construct a budget line for the expenditure of $10 4. when Arby's are $2 each and Wendy's are $1 each. A budget line shows the inverse price ration between the two products. b. (1 pt.) Construct a budget line for the expenditure of $16 with Arby's and Wendy's same prices as in (a) above. Arbys

Explanation / Answer

Question 3

Marginal utility is calculated as follows -

MU = Change in total utility/Change in consumption

The given table shows that when consumption of jeans increases from 0 to 1, total utility increases from 0 to 150.

So,

Change in total utility = 150 - 0 = 150

Change in consumption = 1 - 0 = 1

MU = Change in total utility/Change in consumption = 150/1 = 150

The MU when consumption increases from 0 to 1 is 150.

In similar manner, MU for other levels of consumption can be calculated.

Following is the complete table -

(b)

The marginal utility is decreasing as the consumption of jeans by the person is increasing.

In other words, marginal utility is declining.

Number of Jeans Total Utility Marginal Utility 0 0 X 1 150 (150/1) 150 2 280 (130/1) 130 3 360 (80/1) 80 4 410 (50/1) 50 6 460 (50/2) 25 7 470 (10/1) 10

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