Purchase Solution

Consumer Behavior and Utility Maximization

Not what you're looking for?

Ask Custom Question

Can you please answer question 1 (a-c) and question 2 (a-d). The should be approached from an Introductory Microeconomics perspective. The concept dealt with in the exercise is Consumer Behavior and Utility Maximization.

Attachments
Purchase this Solution
Solution Summary

Consumer Behavior and Utility Maximization are exemplified. The concepts of consumer behaviors are given.

Solution Preview

Please refer to the attachment.

1. The table below shows the marginal utility that a consumer would get by consuming various quantities of goods A, B, C and D. The last column gives the Marginal Utility (MU) the consumer gets from saving. Suppose that the prices per unit of goods A, B, C and D are $18, $6, $4 and $24, respectively. The price of a dollar of saving is $1. Assume also that the consumer has is an income of $106 per period.
Column 1 Column 2 Column 3 Column 4 Column 5
Units of A MU Units of B MU Units of C MU Units of D MU $ Saved MU
1 72 1 24 1 15 1 36 1 5
2 54 2 15 2 12 2 30 2 4
3 45 3 12 3 8 3 24 3 3
4 36 4 9 4 7 4 18 4 2
5 27 5 7 5 5 5 13 5 1
6 18 6 5 6 4 6 7 6 0.5
7 15 7 2 7 3.5 7 4 7 0.25
8 12 8 1 8 3 8 2 8 0.125

a. What quantities of goods A, B, C and D will the consumer buy in maximizing his/her total utility?

When the total utility is maximized, the marginal utility over price of each good (saving) should be the same. Otherwise, the consumer will spend more money on the item that gives him higher marginal utility.
Therefore, we will have:
MUa / 18 = MUb / 6 = MUc / 4 = MUd / 24 = MUs / 1
Where "MUs" stands for ...

Purchase this Solution
Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

View More Free Quizzes
Related BrainMass Solutions

  • Total utility, marginal utility, and utility maximization

    20828 Total utility, marginal utility, and utility maximization Can you please explain the concepts of total utility, marginal utility, and utility maximization.

  • exchange economy

    The solution covers concepts including utility maximization, consumer demand and consumer consumption.

  • Consumer theory and benefit packages

    Benefit packages and maximization of utility by employees.

  • Consumer Theory Notation

    (b) Set up the consumer's utility maximization problem and find the demand at any given vector of prices p = (p1, p2) > 0 and income M > 0. Are the goods normal or inferior?

  • Utility Maximization and Giffen Goods

    108474 In the context of the usual utility maximization problem involving n (>2) goods, prove that not all goods can be Giffen and that a Giffen good must have at least one gross complement.

  • Behaving Optimally and Utility Maximization

    So the consumer, in this case, should buy 24 units of caviar and 4 units of denim jeans. I hope it helps! This solution shows steps on how to solve this consumer utility maximization problem by determining the utility function of px and py.

  • Indifference Curves and budget lines

    How can you find the utility-maximization point. Describe why other points on some indifference curves do not represent utility-maximization. NOTE: You are not required to submit graphs as part of any answer.

  • maximize utility subject to the budget constraint

    Using Lagrangian technique, the expert maximizes the utility subject to the budget constraint. The interest rates for consumer maximization are determined.

  • Utility Maximization

    168064 Utility Maximization Exchange Economy This question is about Walrasian equilibrium in an exchange economy with 2 goods and 2 consumers. Taxes are introduced in the question to solve for the equilibrium and allocation under Pareto theorem.

View More Related Solutions