Microeconomics

ECON140
Tutorial revision CHAPTER 7
1. The theory of consumer behavior assumes that consumers
attempt to maximize:

A. The difference between total marginal utility

B. Total utility
C. Average utility
D. Marginal utility

ANSWER: (B)
Total utility is the total amount of satisfaction derived from the
consumption of a single product or a combination of products.
2. Marginal utility can be:

A. Positive but not negative

B. Positive or negative, but not zero
C. Positive, negative, or zero
D. Decreasing, but not negative

ANSWER: (C)
Marginal utility is the extra utility a consumer obtains from the
consumption of 1 additional unit of a good or service, equal to the
change in total utility divided by the change in quantity consumed.
3. Where total utility is at a maximum, marginal utility is:

A. negative
B. Positive and increasing
C. zero
D. Positive but decreasing

ANSWER: (C)
4. The first Pepsi yields Craig 18 units of utility and the second yields
him an additional 12 units of utility. His total utility from three Pepsis
is 38 units of utility. The marginal utility of the third Pepsi is:

A. 26 units of utility
B. 6 units of utility
C. 8 units of utility
D. 38 units of utility

ANSWER: (C)
MU = ΔTU/ΔQ
5. Refer to the data. The value for Y is:

A. 25
B. 30
C. 40
D. 45
ANSWER: (D)
Y=35+10
6. Refer to the data. The value for X is:

A. 15
B. 5
C. 55
D. 10

ANSWER: (A)
X=35-20
7. Refer to the data. The value for Z is:

A. -5
B. +5
C. -10
D. Zero

ANSWER: (A)
40-45
Question 2
Fill in the following table on the total and marginal utilities of a
product A. Also answer the questions.

Units of Total Marginal Stages

product A utility utility of Utility

0 0 - stage 1: Q↑/ TU↑/MU↓ +
1 20 20 stage 1: Q↑/ TU↑/MU↓ +
2 35 35-20=15 stage 1: Q↑/ TU↑/MU↓ +
3 35+10=45 10 stage 1: Q↑/ TU↑/MU↓ +
4 45+5=50 5 stage 1: Q↑/ TU↑/MU↓ +
5 50+0=50 0 Stage2: Q↑/TU MAX/MU=0
6 45 45-50=-5 Stage3: Q↑/TU ↓/MU= Negative

7 35 35-45=-10 Stage3: Q↑/TU ↓/MU= Negative

8 35+(-15)=20 −15 Stage3: Q↑/TU ↓/MU= Negative

Question 3
The table below shows the marginal utility a costumer would get by purchasing various quantities
of A, B, and C. The product prices for A, B, and C are $3, $2, and $1 respectively. The consumer
has $20 to spend on the three products.
(3)
(1) (2) Marginal
Price A=$3
Price B=$2 Unit of Marginal utility, Marginal utility, C
Price C=$1 product A utility, B
Income=$20
𝟑𝟎
= 10
𝟐𝟐
=11 12 𝟏𝟐
=12
1 30 𝟑 22 𝟐 𝟏
𝟐𝟕
=9 10 10 10
2 27 𝟑 20
3 24
𝟐𝟒
=8 18 9 8 8
𝟑

4 21 7 16 8 6 6
5 18 6 14 7 4 4
6 15 5 12 6 2 2
Question 3
(3)

(1) (2) Marginal

utility, C
Unit of Marginal utility, Marginal
product A utility, B
10 11 12 12
1 30 22
9 10 10 10
2 27 20
8 9 8 8
3 24 18
4 21 7 16 8 6 6
5 18 6 14 7 4 4
6 15 5 12 6 2 2

What combination of the three products should be purchased in order to maximize utility?

𝑀𝑎𝑟𝑖𝑔𝑛𝑎𝑙 𝑢𝑡𝑖𝑙𝑖𝑡𝑦 𝐴 𝑀𝑎𝑟𝑖𝑔𝑛𝑎𝑙 𝑢𝑡𝑖𝑙𝑖𝑡𝑦 𝐵 𝑀𝑎𝑟𝑖𝑔𝑛𝑎𝑙 𝑢𝑡𝑖𝑙𝑖𝑡𝑦 𝐶

Where 𝑃𝑟𝑖𝑐𝑒 𝐴
= 𝑃𝑟𝑖𝑐𝑒 𝐵
= 𝑃𝑟𝑖𝑐𝑒 𝐶
=8
3units of A 3X$3=9
4units of B 4X$2=8
3units of C 3X$1=3
9+8+3=$20 consumer income