How much total utility will albert experience by buying


Assignment

A. Utility theory is important for understanding consumer choice.

a. Define total utility.

b. Define marginal utility.

c. State the law of diminishing marginal utility.

d. Explain why we cannot use the law of diminishing marginal utility to tell whether an additional dollar of income is worth more to a poor man or a rich man.

B. Chuck has been hired by the Academic Department of a Community College to tutor students who are struggling in the Math classes. Chuckdoes not have Internet service at home, so he can either go to a local store that provides Internet for ten cents per minute and Skype students or he can drive to Campus to meet them. The Community College is located 20 miles from Chuck's home and the round-trip costs of $5 in gasoline money. In both cases, he can only tutor one student. He has a total of $20 per week to spend on tutoring. To make his preferred choice, Chuck uses a handy utilimometer that measures his total utility from Skype call and from Campus visits. Using the values given in the following table, figure out the points on Chuck's consumption choice budget constraint (it may be helpful to do a sketch) and identify his utility-maximizing point. Also, take Chuck's total utility information, and use the marginal utility approach to confirm the choice of Internet minutes and campus visits that maximize Chuck's utility

Campus visits

Total Utility

Internet Minutes

Total Utility

0

0

0

0

1

80

20

200

2

150

40

380

3

210

60

540

4

260

80

680

5

300

100

800

6

330

120

900

7

200

140

980

8

180

160

1040

9

160

180

1080

10

140

200

1100

C. Albert is an avid consumer of two specific services, A and B. The following table shows the total utility (TU) that Albert receives from consuming the services on a monthly basis.

a. Fill in the other columns of the table by calculating the marginal utilities for services A and B and the ratios of marginal utilities to price for the two services. Assume that the price of both services is $5. Be sure to use the "midpoint convention" when you fill out the table.

b. If Albert allocates $100 to spend on both services, how many units will he buy of each?

c. How much will Albert spend on each service at the utility maximizing combination?

d. How much total utility will Albert experience by buying the utility-maximizing combination?

e. Suppose the price of service B increases to $10. How many units of A and B will he buy to maximize his utility now?

f. Draw Albert's demand curve for service B between the prices of $10 and $5.

Quantity

TU (A)

MU (A)

MUA/PA

TU (B)

MU (B)

MUB/PB

0

0

 

 

0

 

 

1

50

 

 

75

 

 

2

88

 

 

117

 

 

3

121

 

 

153

 

 

4

150

 

 

181

 

 

5

175

 

 

206

 

 

6

196

 

 

225

 

 

7

214

 

 

243

 

 

8

229

 

 

260

 

 

9

241

 

 

276

 

 

Format your assignment according to the following formatting requirements:

1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.

2. The response also include a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.

3. Also Include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.

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