Below is the marginal willingness to pay of a consumer for...

Below is the marginal willingness to pay of a consumer for organic apples. $$ \begin{array}{cc} \hline \begin{array}{c} \text { Consumption Level } \\ \text { (apples per week, lbs.) } \end{array} & \begin{array}{c} \text { Marginal } \\ \text { Willingness to Pay } \end{array} \\ \hline 0 & 5.00 \\ 1 & 4.00 \\ 2 & 3.20 \\ 3 & 2.60 \\ 4 & 2.20 \\ 5 & 1.80 \\ 6 & 1.50 \\ \hline \end{array} $$ a. What is this individual's total willingness to pay at a consumption level of 4 apples? b. If the price of organic apples is $$\$ 2.40$$, how many apples would this person consume?

Below is the marginal willingness to pay of a consumer for organic apples.
$$
\begin{array}{cc}
\hline \begin{array}{c}
\text { Consumption Level } \\
\text { (apples per week, lbs.) }
\end{array} & \begin{array}{c}
\text { Marginal } \\
\text { Willingness to Pay }
\end{array} \\
\hline 0 & 5.00 \\
1 & 4.00 \\
2 & 3.20 \\
3 & 2.60 \\
4 & 2.20 \\
5 & 1.80 \\
6 & 1.50 \\
\hline
\end{array}
$$
a. What is this individual's total willingness to pay at a consumption level of 4 apples?
b. If the price of organic apples is $$\$ 2.40$$, how many apples would this person consume?

Key Concepts

Marginal Willingness to Pay

Marginal willingness to pay (MWTP) refers to the additional amount a consumer is willing to pay for one more unit of a good. It is a reflection of the incremental benefit or satisfaction obtained from consuming an additional unit, and typically decreases as the quantity consumed increases. This concept is fundamental in understanding consumer behavior and demand, as it illustrates how the value of each additional unit changes with consumption.

Total Willingness to Pay

Total willingness to pay (TWTP) is the aggregate amount a consumer would be willing to pay for a given quantity of a good. It is calculated by summing the marginal willingness to pay for each unit consumed up to that quantity. This measure captures the maximum expenditure a consumer is ready to make to obtain a specific consumption bundle, reflecting the overall utility derived from the good.

Consumer Demand Decision

Consumer demand decision-making involves comparing the price of a good to the marginal willingness to pay for additional units. A rational consumer will purchase additional units as long as the price is lower than or equal to their marginal willingness to pay for those units. The decision to consume a particular quantity is based on maximizing consumer surplus, which is the difference between the total willingness to pay and the actual expenditure.

Transcript

00:01 Okay.

00:03 So the first part of the problem asked us to calculate how much money is made by a marginal addition of labor.

00:11 Remember two things.

00:12 First, that the cost of hiring an additional unit of a factor production is called the factor price.

00:20 The value to the firm of hiring one more unit of a factor production is called the factor's value of marginal product, or the vmp.

00:31 Knowing that information, you have a table you can see.

00:35 However, i made a slight modification.

00:37 I added zero, i added zeros for the first value just to make this easier to conceptualize.

00:46 However, we're going to use the first two example, or the first few values as an example in order to calculate this.

00:57 So now i'm about to make a third column.

01:03 This is marginal product.

01:15 And the marginal product is basically how much more.

01:19 Or how much of a product increases by whenever another worker is added.

01:24 So in this case, we start off with zero.

01:28 And if we add one student, we get 20 pounds of fish packed.

01:33 So that means the marginal product would be 20.

01:53 And i'll look at the second one.

01:55 So when we go from one to two students, you see there's an increase of 30 pounds of fish packed.

02:01 Because it goes from 20 to 50.

02:02 So that means the marginal product going from 1 to 2 students would be 30.

02:11 And we can just keep repeating this process for the rest of the table.

02:41 Okay.

02:43 So now that we have the marginal product for each student, for each increase in students, now i'll add the fourth and final part of the table, the value of marginal product, otherwise known as the vmp.

03:08 So in order to calculate the vmp, the vmp is equivalent to the marginal product times the price.

03:18 And the problem gives us the price for each pound of fish packed.

03:24 It's 50 cents.

03:26 So now to calculate the value of marginal product, let's look at the first one.

03:35 So the marginal product is 20 because when you go from zero students to one student, the amount of the quantity of fish packed increased by 20 pounds.

03:47 And that times 50 cents as well.

03:50 $10...

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