Question

12.

Suppose that Jennifer's marginal utility for good X and Y are MU_X = 10, MU_Y = 15 with prices for good X and Y as P_X = $5, and P_Y = $3. Which of the following statements is TRUE?

	A.	she is receiving more marginal utility per dollar from good Y than from good X.
	B.	she could increase utility by consuming more of good X and less of good Y.
	C.	she is maximizing utility.
	D.	she could increase utility by consuming more of good Y and less of good X.

18.

Suppose the market for pineapples consists of only two consumers and their demand curves are given by: Q₁ = 8 - 0.2 P and Q₂ = 10 - 0.2 P. Which of the following represents the market demand curve, Q_M ?

	A.	QM = 18 – 0.4P if P < $40, and QM = 10 – 0.2P if P > $40
	B.	QM = 18 – 0.4P
	C.	QM = 8 – 0.2P if P ≥ $40, and QM = 18 – 0.4P if P < $40
	D.	QM = 18 – 0.4P if P ≥ $40, and QM = 10 – 0.2P if P < $40

Answer 1

12. d) she could increase utility by consuming more of good Y and less of good X

good X= MU_X/P_X = 10/5 = 2

good Y = MU_Y/P_Y = 15/3 = 5

To obtain the greatest utility the consumer should allocate money income so that the last dollar spent on each good or service yields the same marginal utility. She can maximize utility by consuming more of Y and less of X as by doing so she will increase MU_X and decrease MU_Y.

13. a)Q_M = 18 – 0.4P if P < $40, and Q_M = 10 – 0.2P if P > $40

Q₁ = 8 - 0.2 P, Consumer will demand only when price is less than 40, Solve for P by equating Q to 0.

Q₂ = 10 - 0.2 P, consumer will demand only when price is less than 50, Solve for P by equating Q to 0.

Market demand is the horizontal summation of individual demand curve.

When Price > 40 only consumer 2 buys and when P<40 both of them buy