University of Management and Technology, Sialkot

Micro Economics

Assignment

Theory of Consumer Choice

Grade: - ______________
Date: -_______________

Submitted by: - Submitted to: -

Full Name: Wania Nadeem

Program: BBIS Ms Mamona Sadaf
Complete Registration No.: 16003054-004
 Theory of Consumer Choices
Question no.1

a. Which one-unit increase in

consumption from one point to the next along the
total utility curve generates the highest marginal
utility?
When Marginal utility is Positive, Total utility is
increasing. So the highest Marginal utility will be on
the first unit of consumption (Point B) because
Marginal utility tends to decrease as more unit of
products are consumed

b. Which one-unit increase in consumption from one point to the next along the
total utility curve generates zero marginal utility?
When Marginal utility is zero, Total utility is maximized. So the Marginal Utility is
zero on its 4th and 5th unit of consumption (Point E and F)

c. Which one-unit increase in consumption from one point to the next along the
total utility curve generates negative marginal utility?
When the Marginal utility is negative, Total Utility is decreasing. So the Marginal
utility will be negative on the 6th unit of consumption (Point G)

d. Marginal utility curve corresponding to the total utility curve.

4 Quantity Total Utility Marginal Utility

Marginal Utility

3 0 0 0
1 5 5
2 2 8 3
1 3 10 2
4 11 1
0
5 11 0
1 2 3 4 5 6
-1 6 10 -1
-2
Consuption per Week
 Question no.2

a. From the data in

Problem , if the price of a
cheeseburger is $2, the price
of a bag of French fries is $1,
and you have $6 to spend
(and you spend all of it), what
is the utility-maximizing
combination of cheeseburgers
and French fries?

Income: $6
Cheese burger: $2
French Fries: $1

Combination of Cheese burger and French Fries that could be purchased with the given income:

Cheese Burger French Fries

3 0
2 2 Utility maximizing
1 4 bundle
0 6

No. of Total Marginal Marginal No. of Total Marginal Marginal

Cheese Utility Utility Utility French Utility Utility Utility
Burger per $ Fries per $
0 0 0 - 0 0 0 -
1 20 20 10 1 10 10 10
2 36 16 8 2 18 8 8
3 48 12 6 3 20 2 2
4 56 8 4 4 21 1 1
5 60 4 2 5 21 0 0

Utility maximizing combination of cheeseburgers and French fries is: MUCB/PCB = MUFF/PFF

16/2 = 8/1

8 = 8
 b. Suppose that the price of cheeseburgers falls to $1. Determine the new utility-
maximizing combination of cheeseburgers and French fries.

Income: $6
Cheese burger: $1
French Fries: $1

Combination of Cheese burger and French Fries that could be purchased with the given income:

Cheese Burger French Fries

6 0
5 1
4 2 Utility maximizing
3 3 bundle
2 4
1 5
0 6

No. of Total Marginal Marginal No. of Total Marginal Marginal

Cheese Utility Utility Utility French Utility Utility Utility
Burger per $ Fries per $
0 0 0 - 0 0 0 -
1 20 20 20 1 10 10 10
2 36 16 16 2 18 8 8
3 48 12 12 3 20 2 2
4 56 8 8 4 21 1 1
5 60 4 4 5 21 0 0

Utility maximizing combination of cheeseburgers and French fries is: MUCB/PCB = MUFF/PFF

8/1 = 8/1
8 = 8