Utility and Consumer Decision Making AP Microeconomics
Name ______Block ______Date ______
Utility and consumer decision making AP Microeconomics
Solutions for Qs 4-7
4. Complete the following chart:
Cans of Soda / Total Utility / Marginal Utility(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
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.
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.
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).
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.
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.
6. Consider and complete the following chart. You can either buy a large burrito for $10 or a soda for $2.50.
Number / Marginal utility of burritos / MU burrito /price of burrito (MU/$) / Marginal utility of soda / MU soda /price of soda (MU/$)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.
b. Now imagine your budget increases to $40. How many of each would you buy?
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.
c. Now imagine the price of a soda increased to $5 (keeping the higher budget intact). How many of each would you buy?
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.
7. Prior FRQ
