Chapter 1. Chapter 10
Step 1
Work It Out
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You must read each slide, and complete any questions on the slide, in sequence.
Question
Brenda likes to have bagels and coffee for breakfast. The accompanying table shows Brenda’s total utility from various consumption bundles of bagels and coffee.
| Consumption Bundle | ||
|---|---|---|
| Quantity of Bagels |
Quantity of Coffee (cups) |
Total utility (utils) |
| 0 | 0 | 0 |
| 0 | 2 | 28 |
| 0 | 4 | 40 |
| 1 | 2 | 48 |
| 1 | 3 | 54 |
| 2 | 0 | 28 |
| 2 | 2 | 56 |
| 3 | 1 | 54 |
| 3 | 2 | 62 |
| 4 | 0 | 40 |
| 4 | 2 | 66 |
Table
Suppose Brenda knows she will consume 2 cups of coffee for sure. However, she can choose to consume different quantities of bagels. She can choose either 0, 1, 2, 3, or 4 bagels.
Find Brenda’s total utility and calculate her marginal utility from bagels as she goes from consuming 0 bagel to 1 bagel, from 1 bagel to 2 bagels, from 2 bagels to 3 bagels, and from 3 bagels to 4 bagels. Assume she consumes two cups of coffee.
| Quantity of Bagels | Quantity of Coffee (cups) | Total utility (utils) | Marginal utility (utils) |
|---|---|---|---|
| 0 | 2 | KCanRrrS1fI= | --- |
| 1 | 2 | bDGqlNBwCCQ= | Tu9IG1n3UyE= |
| 2 | 2 | IqUnmj//SFk= | L6bSXEGJIC8= |
| 3 | 2 | yxIQ2q/FSPA= | yBhAQ+3VvjM= |
| 4 | 2 | fS6XYX+48/I= | h4XZagboIgc= |
Table
First find total utility from the table above when Brenda consumes two cups of coffee for each bagel she consumes. Marginal utility is calculated as the change in total utility going from 0 to 1 bagel, 1 to 2 bagels, 2 to 3 bagels, and 3 to 4 bagels. If Brenda does not consume any bagels she will have a total utility of 28 of utils. After consuming her first bagel, total utility will increase to 48 utils, Marginal utility is calculated as the difference in total utility. Brenda has a marginal utility of 20 utis (48 – 28) when she consumes the first bagel. Her total utility increases to 56 utils as she consumes her second bagel which provides her with a marginal utility of 8 utils (56 – 48). Her total utility increases to 62 and 66 when she consumes 3 and 4 bagels, respectively. Brenda has a marginal utility of 6 utils (62 – 56) and 4 utils (66 - 62) for 3rd and 4th bagels, respectively. For review see section “Utility and Consumption.”
Find Brenda’s total utility and calculate her marginal utility from bagels as she goes from consuming 0 bagel to 1 bagel, from 1 bagel to 2 bagels, from 2 bagels to 3 bagels, and from 3 bagels to 4 bagels. Assume she consumes two cups of coffee.
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Step 2
Question
| Consumption Bundle | |||
|---|---|---|---|
| Quantity of Bagels | Quantity of Coffee (cups) |
Total utility (utils) |
Marginal utility (utils) |
| 0 | 2 | 28 | -- |
| 1 | 2 | 48 | 20 |
| 2 | 2 | 56 | 8 |
| 3 | 2 | 62 | 6 |
| 4 | 2 | 66 | 4 |
Table
Using your table from part A, assume Brenda consumes two cups of coffee does her marginal utility exhibit p08RyUpnckvvsoZ5MwHVh0TN1JJrQpU6zuPVp+5xJ/MBgYL4QbGTgg== returns.
Correct! For review see section “Utility and Consumption”.
Incorrect, since Brenda consumes two cups of coffee her marginal utility is diminishing as she increases her consumption of bagels. Brenda’s marginal utility diminishes from 20 utils after her first bagel to 8 utils from the second bagel. As Brenda consumes the third and fourth bagel, her marginal utility diminishes to 6 and 4 utils, respectively. For review see section “Utility and Consumption.”
Using your table from part A, assume Brenda consumes two cups of coffee does her marginal utility exhibit _______s returns.
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Step 3
Question
| Consumption Bundle | |||
|---|---|---|---|
| Quantity of Bagels | Quantity of Coffee (cups) | Total utility (utils) | |
| 0 | 0 | 0 | |
| 0 | 2 | 28 | |
| 0 | 4 | 40 | |
| 1 | 2 | 48 | |
| 1 | 3 | 54 | |
| 2 | 0 | 28 | |
| 2 | 2 | 56 | |
| 3 | 1 | 54 | |
| 3 | 2 | 62 | |
| 4 | 0 | 40 | |
| 4 | 2 | 66 | |
Table
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Step 4
Question
| Consumption Bundle | |||
|---|---|---|---|
| Quantity of Bagels | Quantity of Coffee (cups) | Total utility (utils) | |
| 0 | 0 | 0 | |
| 0 | 2 | 28 | |
| 0 | 4 | 40 | |
| 1 | 2 | 48 | |
| 1 | 3 | 54 | |
| 2 | 0 | 28 | |
| 2 | 2 | 56 | |
| 3 | 1 | 54 | |
| 3 | 2 | 62 | |
| 4 | 0 | 40 | |
| 4 | 2 | 66 | |
Table
The price of bagels increases to $4, but the price of coffee remains at $2 per cup. Which bundle is her optimal bundle assuming she still has $8 of income?
0VV1JcqyBrI= bagel(s)
XvVM00l89Is= cup(s) of coffee
Correct! For review see section “Budget Constraints and Budget Lines”.
Incorrect, the following table shows the combination of bagels and cups of coffee that are within Brenda’s budget constraint.
Of all the bundles on her budget line, the bundle that contains 1 bagel and 2 cups of coffee gives Brenda the highest utility. So this is her optimal bundle.
Of all the bundles on her budget line, the bundle that contains 1 bagel and 2 cups of coffee gives Brenda the highest utility. So this is her optimal bundle.
The price of bagels increases to $4, but the price of coffee remains at $2 per cup. Which bundle is her optimal bundle assuming she still has $8 of income?
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