Problem Set on Individual Choice
1. Complete the following table of Scout’s utility from drinking cans of soda and answer the
questions below.
Cans of Soda
Total Utility
Marginal
Utility
0
0
1
10
2
12
3
32
4
8
5
4
6
44
7
42
a. At what point does marginal utility begin to fall?
b. Will Scout consume the 7th can of soda? Why?
c. True or false? Scout will be following the utility-maximizing rule by consuming 2 cans of soda.
Why?
2. The following table gives the price and total utility of three goods: A, B and C.
Good
A
B
C
Price
10 TL
2 TL
6 TL
1
200
20
50
2
380
34
60
Total Utility
3
4
530
630
46
56
70
80
5
680
64
90
6
700
72
100
7
630
78
90
8
430
82
80
As closely as possible, determine how much of the three goods you would by with 20 TL. Why did
you choose so?
3. The following table lists the utility that Sarah receives from consuming bananas at $0.25 a banana.
What is the marginal utility of consuming the fourth banana?
4. Goods A and B cost $1 each. The total utility one could get from consuming one unit of good A is
30. The total utility one could get from consuming two units of good B is 60. Based on rational choice
one:
A. should consume more of good A.
B. should consume more of good B.
C. should be indifferent between consuming goods A and B.
D. would not be able to decide what to do because there is not enough information.
5.
a)If the price of one can of Alpo is $0.50 and the price of each McBurger is $1, which of the following
would Ms. Tightwad, a utility-maximizing consumer, buy with her $4?
b) If the price of Alpo increases from $0.50 to $1, how would Mr. Tightwad, a utility-maximizing
consumer, spend his $4?
6. Refer to the following table. At this level of consumption of goods A and B, the consumer:
A. is maximizing satisfaction for the given expenditure.
B. could increase total satisfaction for a given expenditure by increasing the consumption of A and
decreasing that of B.
C. could increase total satisfaction for a given expenditure by increasing the consumption of B and
decreasing that of A.
D. should consume only A.
7. Joe is maximizing utility by consuming three colas at $2 apiece and four hot dogs at $3 apiece. The
last cola gave him 200 units of utility. How many units of utility did the last hot dog give him?
8. A Big Mac meal costs $3.00 and gives you an additional 5 units of utility; a meal at the Four
Seasons Hotel costs $27.00 and gives you an additional 45 units of utility. Based only on the
information you have, using the theory of rational choice, what would you do?
9. There a student named Anne who attends a community college in a Midwestern town.
She knows she needs
to control her expenses, so she allows herself a monthly entertainment budget of $30 per month for
entertainment. She has two favorite activities that take up this budget. She and many of her friends enjoy line
dancing at a local club that has a country and western theme. She also enjoys attending the games of a local
minor league baseball team. She has gotten to know some of the players, and many of her friends also attend
these games.
The data shown below offers an insight into the total utility that each of these events Offer Anne. Assume that
admission to the club costs her $4.00 per visit, and ball game tickets are $7.00 per game.
Questions:
o
Complete the chart.
Trips To The Club
Per Month
Total
Utility
1
16
2
3
Marginal Utility
(MU)
Marginal Utility Per $
(MU/P)
$4.00
11
35
Price Per
Visit (P)
$4.00
$4.00
2.75
4
41
5
44
$4.00
6
4
$4.00
2
$4.00
1.50
.50
o
o
Trips To Baseball
Games Per Month
Total
Utility
Marginal Utility
(MU)
Price Per
Visit (P)
Marginal Utility Per
$ (MU/P)
1
21
$7.00
2
33
$7.00
1.71
3
42
9
$7.00
1.29
4
6
$7.00
.86
5
3
$7.00
.43
6
0
$7.00
Explain how Anne will maximize her satisfaction (utility) given these facts and her budget.