Consumption Bundle Total Quantity of Quantity of utility bagels coffee (cups) (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 (b) Draw Brenda's marginal utility curve of bagels. Does Brenda have increasing, diminishing, or constant marginal utility of bagels? (c) Brenda now has to make a decision about how many bagels and how much coffee to have for breakfast. She has $8 of income to spend on bagels and coffee. Use the information given in the table to answer the following (d) Bagels cost $2 each, and coffee costs $2 per cup. Which bundles are on Brenda's budget line? For each of these bundles, calculate the level of utility (in utils) that Brenda enjoys. Which bundle is her optimal bundle? (e) The price of bagels increases to $4, but the price of coffee remains at $2 per cup. Which bundles are now on Brenda?s budget line? For each bundle, calculate Brenda's level of utility (in utils). Which bundle is her optimal bundle? (f) What do your answers to parts c and d imply about he the slope of Brenda's demand curve for bagels? Describe the substitution effect and the income effectof this increase in the price of bagels, assuming that bagels are a normal
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The marginal utility of bagels is the change in utility divided by the change in quantity of bagels. From the table, we can calculate the marginal utility of bagels for each quantity. For example, when Brenda consumes 0 bagels, the marginal utility is 0 utils. Show more…
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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. 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. a. Calculate Brenda's 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. b. Draw Brenda's marginal utility curve of bagels. Does Brenda have diminishing marginal utility of bagels? Explain. c. Brenda has $\$ 8$ of income to spend on bagels and coffee. Bagels cost $\$ 2$ each, and coffee costs $\$ 2$ per cup. Which bundles are on Brenda's budget line? For each of these bundles, calculate the level of utility (in utils) that Brenda enjoys. Which bundle is her optimal bundle? d. The price of bagels increases to $\$ 4$, but the price of coffee remains at $\$ 2$ per cup. Which bundles are now on Brenda's budget line? For each bundle, calculate Brenda's level of utility (in utils). Which bundle is her optimal bundle? e. What do your answers to parts a and b imply about the slope of Brenda's demand curve for bagels? Describe the substitution effect and the income effect of this increase in the price of bagels, assuming that bagels are a normal good.
(a) What is the total effect on the demand of apples when its price changes from $1 to $2? [2 marks] (b) Decompose this total effect into a substitution and an income effect. Denote as B the intermediate decomposition bundle. [2 marks] (c) Provide a graphical illustration of these effects and how they determine the total effect you described under (a), together with a representation of the various bundles A, B, and C. [2 marks]
Akash M.
52. Jason is trying to decide whether to buy a bagel or a muffin for breakfast. The bagel costs $0.50 and has a marginal utility of 5. The muffin costs $1 and has a marginal utility of 20. Which should he buy and why? a. The muffin, because it has a higher marginal utility b. The muffin, because it has a lower marginal utility c. The bagel, because it costs less d. The bagel, because it has a higher marginal utility per dollar e. The muffin, because it has a higher marginal utility per dollar 53. Derek has $1 to spend at the grocery store. An apple, an orange, and a banana cost $0.50 each. If Derek's MUA/PA (ratio of marginal utility to price) of an apple is 45, MUO/PO of an orange is 38, and MUB/PB of a banana is 52, he will purchase a(n) _____ first and a(n) _____ second. a. apple; orange b. orange; apple c. banana; orange d. banana; apple e. orange; banana 54. If an oligopolistic manufacturer believes that he faces a kinked demand curve for his product, he thinks his competitors will ____ if he lowers his price and ____ if he raises his price. a. lower their prices; raise their prices. b. lower their prices; not raise their prices c. not lower their prices; raise their prices d. not lower their prices; not raise their prices 55. At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit of zero. If the market demand curve is downward sloping and his marginal cost curve upward sloping, the monopolist a. is producing his profit-maximizing level of output. b. could increase his profit by increasing his output. c. could increase his profit by increasing his price. d. should exit the market if he has positive fixed cost.
Crystal W.
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