affects of utility
In this Assessment, you will demonstrate your understanding of marginal utility, Price Elasticity of Demand, and understanding the difference between Price Elasticity of Demand and Income Elasticity of Demand.
We all subconsciously assign scores to what we are considering to purchase, based on our expected level of satisfaction (Marginal Utility) with that purchase. When making simultaneous pairs of purchases, again we subconsciously compare the amount of satisfaction (Marginal Utility) that we will receive from the pair of purchases. To decide on the ideal combination of these two purchases, we expect that the last dollar we spend on each of the items will give us the same satisfaction per dollar (Marginal Utility per dollar). Further, we know that the MORE of an item that we get, the next one we get will give us LESS satisfaction (Marginal Utility) than the last one gave us (the Law of Diminishing Marginal Utility). Using what you have learned about Marginal Utility and Marginal Utility per dollar, answer the following questions.
Directions:
Using the Word template provided in the Minimum Submission Requirements, answer the following questions based on the situation.
Questions
1. Jane has been working all day, missing both her breakfast and lunch. Finally able to leave work, after being required to work a couple of overtime hours, she is starving. Jane has $20 in her pocket, so she stops at a local fast food restaurant and orders a grilled chicken sandwich and an order of fries. As she sits down to eat them, a University student approaches her and tells her that she is doing a research project for her microeconomics course, and would like to ask Jane a few quick questions. Jane agrees and the student asks what score (marginal utility) from 1 to 100 would she give as her satisfaction level with the first sandwich and the first order of fries? After eating that order, Jane is still hungry and orders a second chicken sandwich and another order of fries. Again, the student asks Jane to give her new scores. Since Jane has not eaten all day, she is hungry enough to order a third round of food and again gives scores to the inquisitive student.
Below is the University students completed experiment tally sheet of Janes marginal utility scores and the calculation of her marginal utility per dollar, given that each sandwich costs $4.00, and each order of fries costs $2.00. Her budget is $20. The student filled in the shaded cells based on Janes responses, then computed the values in the remaining cells. Using this information, answer the following questions:
Students completed experiment tally sheet. Available budget is $20.
Order of
mu (score) from 1 to 100
Price of each
$4.00
Money spent on
Order of
mu (score) from 1 to 100
Price of each
$2.00
Money spent on
Total Money Spent
Total Budget Remaining
Chicken Sandwich
mu
mu/$
Chicken Sandwich
Fries
mu
mu/$
Fries
1st
100
25
$4.00
1st
50
25
$2.00
$6.00
$14.00
2nd
72
18
$4.00
2nd
20
10
$2.00
$12.00
$8.00
3rd
60
15
$4.00
3rd
6
3
$2.00
$18.00
$2.00
4th
4th
Utility
232
Utility
76
Total utility for both
308
Total spent on Chicken Sandwiches
$12.00
Total spent on fries
$6.00
$18.00
$2.00
Is Jane maximizing her utility? Explain your reasoning and show any calculations.
If Jane is not maximizing her utility, remembering the Law of Diminishing Marginal Utility, would she be better off to buy one less chicken sandwich and one more order of fries? Explain your reasoning and show any calculations.
If Jane is not maximizing her utility with the original purchase combination, remembering the Law of Diminishing Marginal Utility, would she be better off buying just one more order of fries? Explain your reasoning and show any calculations.
If Jane is not maximizing her utility with the original purchase, remembering the Law of Diminishing Marginal Utility, would she be better off buying one less order of fries and one more chicken sandwich? Explain your reasoning and show any calculations.
2. Remembering the Learning Activity, in the year 107 WBCE (Way Before the Common Era) the Gondwanaland Chairman of Production reported that the gosum berry growers could meet an average demand of 700 barrels of gosum berries per month at an average a price of $70 per barrel.
In the year 108 WBCE, the growers were plagued with a gosum berry bug infestation that reduced average output, causing production to fall to only 600 barrels per month, causing the price to rise to $84 per barrel. The following table shows the Chairmans report:
Year (WBCE)
Monthly barrels of gosum berries demanded
Price per barrel
107
700
$70
108
600
$84
Using the midpoint method, calculate the price elasticity of demand for Gondwanaland gosum berries. Explain what this price elasticity of demand means?
Complete the table below by calculating what the monthly average total revenue is for year 107, what the monthly average total revenue is for year 108, and the change in average total monthly revenue for these two years. How have these numbers changed?
Year (WBCE)
Monthly barrels of gosum berries demanded
Price per barrel
Change in
average total monthly revenue
Monthly average total revenue
107
700
$70
108
600
$84
Using your answer to part a. above, how could you have predicted the change in total monthly revenue that you found in part b. above?
3. The Gondwanaland Chairman of Production reported that the new Altair chariots (most modern, horse drawn family chariot) had a PRICE elasticity of 3 and an INCOME elasticity of 2. The supply of these Altair chariots is elastic. Evaluate the following statements and explain why you think they are true, or false.
A 20% increase in the price of the Altair chariot will cause the quantity demanded to fall by an astounding 60%.
An increase in Gondwanaland consumers incomes will cause prices to rise, but the total quantity demanded will also increase.
4. The accompanying table shows the price and monthly demand for barrels of gosum berries in Gondwanaland.
Price of gosum berries per barrel
Native Demand for gosum berries per month
$100
0
$90
100
$80
200
$70
300
$60
400
$50
500
$40
600
$30
700
$20
800
$10
900
$0
1000
Using the midpoint method (show your work), calculate the price elasticity of demand when the price of a barrel of gosum berries rises from $10 to $20. What kind of elasticity is this value that you computed for the price elasticity of demand and what does it mean for how demand will change based on a change in price within this price range?
Using the midpoint method (show your work), calculate the price elasticity of demand when the price of a barrel of gosum berries rises from $70 to $80. What kind of elasticity is this value that you computed for the price elasticity of demand and what does it mean for how demand will change based on a change in price within this price range?
Notice that the estimates from (a) and (b) above are different. Why do price elasticity of demand estimates change along the demand curve?
5. Matilda is downloading music and videos from an online site. She is currently buying three music downloads that cost $3 each and two video downloads that also cost $3 each. The table below indicates what she reports as the marginal utility of the last music download and of the last video download in this combination of purchases.
Downloads
Quantity
Price per Download
MU per download
Music downloads
3
$3
60
Video downloads
2
$3
45
As an assignment for her Microeconomics course, Matilda used the marginal utilities that she gave to her 3rd music download and her 2nd video download to complete the Experiment Tally Sheet below. Her available budget was $19.00.
Downloads of
mu (score) from
1 to 100
Price of each
$3.00
Money spent on
Downloads of
mu (score) from 1 to 100
Price of each
$3.00
Money spent on
Total Money
Total Budget
music
mu
mu/$
music
videos
mu
mu/$
videos
Spent
Remaining
1st
?
?
$3.00
1st
?
?
$3.00
$6.00
$13.00
2nd
?
?
2nd
45
15
$3.00
$12.00
$7.00
3rd
60
20
$3.00
3rd
$15.00
$4.00
4th
4th
Total money spent on music
$9.00
Total money spent on videos
$6.00
$15.00
$4.00
A consumer maximizes utility when the last dollar spent on any good generates the same satisfaction as the last dollar spent on every other good. Is Matilda maximizing her utility? Explain your answer.
Should Matilda consume one more video download, to move her closer to her optimum utility? Explain your answer.
Should Matilda consume one less music download and one more video download, to move her closer to her optimum utility? Explain your answer.
Should Matilda consume one more music download, to move her closer to her optimum utility? Explain your answer.
6. Brandon and his family often rent movies from the new internet movie streaming service, Xanadu. The table below shows Brandons demand schedule for eight movie rentals that Brandons family is interested in watching.
Number of internet movie rentals
Willingness to pay each rental
1st
$7
2nd
$6
3rd
$5
4th
$4
5th
$3
6th
$2
7th
$1
8th
$0
If the price of each movie rental from Xanadu is $3, how many movie rentals will Brandon buy and how much consumer surplus does Brandon receive? Explain your answer.
If the price of each movie rental from Xanadu is $5, how many movie rentals will Brandon buy and how much consumer surplus does Brandon receive? Explain your answer.
If the Xanadu online service offers as many movie rentals as the customer wants to download, all for a one-time fee of $25.00, how many movie rentals will Brandon download and how much consumer surplus will Brandon receive? Explain your answer.
If the Xanadu online service offers as many movie rentals as the customer wants to download, all for a one-time fee of $35.00, how many movie rentals will Brandon download and how much consumer surplus will Brandon receive? Explain your answer.
If the Xanadus market research showed that Brandons demand represented what most of Xanadus customers wanted, what would be the most that Xanadu could charge as a one-time fee for all the downloads that the customer wanted?
7. Newspaper vending machines are designed so that once you have paid for one paper; you have access to all the papers in the machine and could take multiple papers at a time. However, other vending machines dispense only one item (the item you bought). You do not have access to all the goods (sodas, candy, snacks, etc.) at one time. Using the concept of marginal utility, explain why these vending machines differ?
Minimum Submission Requirements
This Assessment should be submitted in this template.
Respond to the questions in a thorough manner, providing specific examples of concepts, topics, definitions, and other elements asked for in the questions. Your paper should be highly organized, logical, and focused.
Your paper must be written in Standard English and demonstrate exceptional content, organization, style, grammar, and mechanics.
Your paper should provide a clearly established and sustained viewpoint and purpose.
Your writing should be well ordered, logical and unified, as well as original and insightful.
A separate page at the end of your paper should contain a list of references, in APA format. Use your textbook, the Library, and the internet for research.
Be sure to cite both in-text and reference list citations were appropriate and reference all sources. Your sources and content should follow proper APA citation style. Review the APA formatting and citation style found in the Writing Center. The Writing Center can be found within the Academic Support Center under Academic Tools in the left navigation of your course. (It should be in Times New Roman 12-point font, include correct citations, Standard English with no spelling or punctuation errors, and correct references at the bottom of the last page.)
Collepals.com Plagiarism Free Papers
Are you looking for custom essay writing service or even dissertation writing services? Just request for our write my paper service, and we'll match you with the best essay writer in your subject! With an exceptional team of professional academic experts in a wide range of subjects, we can guarantee you an unrivaled quality of custom-written papers.
Get ZERO PLAGIARISM, HUMAN WRITTEN ESSAYS
Why Hire Collepals.com writers to do your paper?
Quality- We are experienced and have access to ample research materials.
We write plagiarism Free Content
Confidential- We never share or sell your personal information to third parties.
Support-Chat with us today! We are always waiting to answer all your questions.
