<p>Name ______Block ______Date ______Utility and consumer decision making AP Microeconomics Solutions for Qs 4-7</p><p>4. Complete the following chart:</p><p>Cans of Soda Total Utility Marginal Utility </p><p>(note: MU actually occurs between points) 0 0 - 1 10 10 2 22 12 3 32 10 4 40 8 5 44 4 6 44 0 7 42 -2 a. When does diminishing marginal utility begin? With the 3rd can of soda</p><p> b. Imagine the soda is free (marginal cost of each can is zero). If this were your utility schedule, how many cans of soda would you consume? Why? I’d consume 6 cans, until MB=MC.</p><p>5. Dining halls question a) Which dining option should comprise the greater portion of your dining plan if you want to maximize total utility? Explain using marginal utility and marginal cost. </p><p>You should have chosen the traditional dining halls. The “all you care to eat” plans are usually a set price that is “sunk” once it is paid. Therefore, there is no additional (marginal) cost, and people can eat until MB = zero. That means that there’s a greater chance at higher total utility (even though utility is diminishing).</p><p> b) Which dining option should comprise the greater portion of your dining plan if you want to minimize weight gain? Explain using diminishing marginal utility. </p><p>A la carte dining, because the flex dollars choice forces a student to make “how much” decisions for each item consumed – there’s a marginal cost to each item. Therefore, flex dollars plans may result in fewer total calories consumed, because a student is not eating until the MB=0.</p><p>6. Consider and complete the following chart. You can either buy a large burrito for $10 or a soda for $2.50.</p><p>Number Marginal utility MU burrito /price of Marginal utility MU soda /price of soda (MU/ of burritos burrito (MU/$) of soda $) 0 - - 1 60 6 20 8 2 40 4 15 6 3 30 3 10 4 4 20 2 5 2 5 10 1 2.5 1 a. Imagine you have $15 to spend. Using the chart above, how many of each do you purchase? You will want to compare the marginal utility per dollar of the goods, and spend budget / consume until MUx/Px = MUy/Py. I’d purchase 2 sodas and 1 burrito (circled). MUb/Pb = MUs/Ps at that level of consumption, and it is within my budget.</p><p> b. Now imagine your budget increases to $40. How many of each would you buy?</p><p>With an increase in my budget, I can now buy more. Still looking to consume where MUb/Pb = MUs/Ps. So I can buy the circled ones plus the ones with a square around them, which means I buy 3 burritos and 4 sodas.</p><p> c. Now imagine the price of a soda increased to $5 (keeping the higher budget intact). How many of each would you buy? </p><p>The marginal utility per dollar for soda would go down – to 4, 3, 2, 1, and ½. So I would buy more burritos compared to sodas than before. The first two burritos plus one soda would cost me $25 and MU/$ would be equal. I’d still have $15 left, so then I’d see that the next burrito and next soda both have MU/$ of 3, and I can afford both. In total, I would buy 3 burritos and 2 sodas. Makes sense that I can buy less than in 5b.</p><p>7. Prior FRQ </p>