THEORY OF CONSUMER BEHAVIOR
Practice Problems


1. Complete the following table and answer the questions below:

Units consumed
Total Utility
Marginal Utility
0
0
---
1
10
10
2
.
8
3
25
.
4
30
.
5
.
3
6
34
.

a.Would you say that total utility is increasing at a constant rate, a decreasing rate, or an increasing rate? Support your answer with some numbers from the table.

b. True or False?
"A rational consumer will purchase only one unit of the product represented by data given,
since for the first unit marginal utility is at maximum."

Explain.

c. True or False?
"It is possible that a rational consumer will not purchase any units
of the product represented by these data."
Explain.

2. You are willing and able to pay 50 cents for today's "Washburn Review". The cost of printing the newspaper is 15 cents per copy, but you get one for free. What is your consumer surplus from the "Washburn Review"?


3. The table below contains information about the total utility Jerry gains from coffee he buys from the Corner Shop.

Cups of coffee
1
2
3
4
5
Total Utility, $
1.50
2.70
3.60
3.60
2.00


3a. Does this example exhibit the Principle of diminishing marginal utility? Explain.

3b. How many cups of coffee will Jerry buy if the price of each cup is $1? Why?

3c. How many cups of coffee will he buy if the price of each cup is 50 cents? Why?

 

 


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