MAJU
Page 1
Introduction to Microeconomics
MBA
Problem Set :Consumer Behavior and Utility Maximization
Q1) Assume that Harriet Palmer finds only three goods, A, B, and C, for sale and that the amounts will
yield her are as shown in the table below. Compute the marginal utilities for successive units of a, B,
and C and enter them in the appropriate columns.
GOOD A GOOD B GOOD C
Quantity
Total
Utility
Marginal
Utility
Quantity
Total
Utility
Marginal
Utility
Quantity
Total
Utility
Marginal
Utility
1
21
1
7
1
23
2
41
2
13
2
40
3
59
3
18
3
52
4
74
4
22
4
60
5
85
5
25
5
65
6
91
6
27
6
68
7
91
7
28.2
7
70
Q2) Using the marginal utility data for goods A, B, and C that you obtained in Q2, assume that the
prices of A, B, and C are $5, $1, and $4, respectively and that Palmer has an income of 31 to spend.
a) Complete the table below by computing the marginal utility per dollar for successive units of
A, B, and C.
b) Palmer would not buy 4 units of A, 1 unit of B, and 4 units of C because________________.
c) Palmer would not buy 6 units of A, 7 units of B, and 4 units of C because_________________.
d) When Palmer is maximizing her utility; she will buy _______ units of A, ___________ units of
B, _________ units of C; her total utility will be ____________, and her marginal utility of the
last dollar spent on each good will be____________________.
e) If Palmer’s income increased by $1, she would spend it on good _________, assuming she can
buy fractions of a unit of a good, because ____________.
Quantity
Marginal
Utility per
dollar
Quantity
Marginal
Utility per
dollar
Quantity
Marginal
Utility per
dollar
1
1
1
2
2
2
3
3
3
4
4
4
5
5
5
6
6
6
7
7
7
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