Question

(1) Suppose Table 1 is a student's total utility schedule for drinking soda while studying on weekends.

(a) How much marginal utility does the student derive from the third can of soda?

(b) After drinking how many cans does the student's marginal utility start to decline?

(c) If the cafeteria offers unlimited soda for free on one particular weekend, how many cans of soda would the student drink?

(d) If the soda cost $2 per can and the student had a budget of $10 for it, how many cans of soda would the student drink?

(e) Graph the total utility and marginal utility curves for this student's soda consumption.

Figure :

# of soda cans per weekend | Total Utility

0 | 0

1 | 20

2 | 38

3 | 50

4 | 60

5 | 68

6 | 70

7 | 68

Answer 1

1. (a) The marginal utility would be or . Hence, the MU is 12 utils.

(b) The MU table is as below.

S	TU	MU
0	0	-
1	20	20
2	38	18
3	50	12
4	60	10
5	68	8
6	70	2
7	68	-2

The MU starts to decline after 1 unit. As can be seen, the MU is maximum at Q=1, and after that, it continuously decreases.

(c) The student would maximize the total utility if the soda is free (or price of soda is zero). The total utility is maximum at whre Q=6. Hence, the student would take 6 units of soda.

(d) The budget constraint in this case would be as or or . Since this amount is where the MU is still positive, the student would have 5 units of soda in this case.

(e) The graph is as below.