Question

Sally likes Peanut Butter M&Ms. After consuming on bag, Sally has a totaly utility of 12 utils. After two bags, she has a total utility of 28 utils. After three bags, she has a total utility of 55 utils. Does Sally show diminisihing marginal utility for PB M&Ms or does she show increasing marginal utility for PB M&M? Suppose that Sally has $3 in her pocket. If a bag cost $1 each and Sally is willing to spend one of her dollars on purchasing a first bag of PB M&Ms, would she spend her second dollar on a bag, too? What about the third dollar? If Sally's marginal utility for PB M&Ms keeps on increasing no matter how many bags she eats, would it be fair to say that she is addicted to PB M&M?

Answer 1

UNITS CONSUMED TOTAL UTILITY MARGINAL UTILITY

1 12 12

2 28 16= (28-12)

3 55 27

SHE IS SHOWING INCREASING MARGINAL UTILITY AS HER LEVEL OF SATISFACTION IS INCREASING WITH EVERY ADDITIONAL BAG SHE IS CONSUMING

SALLY WOULD BUY 2 BAG AND 3 BAG ALSO AS HER UTILITY SHE IS DERIVING FOR BAG 2 IS MORE THAN BAG 1 AND FOR BAG 3 MORE THAN BAG 2 AND 1.

INCREASING MU DEFIES THE LAW OF DIMINISHING MARGINAL UTILITY, IDEALLY WITH ADDITIONAL CONSUMPTION OF ANY COMMODITY THE MU STARTS REDUCING BUT HERE SINCE SALLY IS DERIVING MORE UTILITY FROM EVERY ADDITIONAL CONSUMPTION SHE IS DOING SHE WIL SPEND MORE AND MORE. BUT YES SHE IS HERE COMPROMISING ON HEALTH PART. IF SHE CONSUMES MORE AND MORE OF M&MS SHE WILL DEFINETELY RUIN HER HEALTH.