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# Household reaction on spending

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The following table gives a hypothetical total utility schedule for the Cookie Monster (CM):

0 0

1 100

2 200

3 275

4 325

5 350

6 360

7 360

Calculate the CM's Marginal utility schedule. Draw a graph of total and marginal utility. If the cookies cost the CM 5 cents each, what is the maximum number of cookies he would most likely eat?

How would each of the following events effect a household reaction on spending:

A) The price of unleaded gasoline rises to over \$4.00 per gallon

B) Tuition at your college is cut 25 percent.

C) You receive an award that pays you \$300 per month for the next five years?

D) Interest rates rise dramatically and savings accounts are now paying 10% interest annually.

E) The price of food doubles ( It you are on a meal plan assume that your board charges double).

F) A new business opens up nearby offering part-time jobs at \$20 per hour.

https://brainmass.com/economics/utility/household-reaction-on-spending-53183

#### Solution Preview

Calculate the CM's Marginal utility schedule. Draw a graph of total and marginal utility. If the cookies cost the CM 5 cents each, what is the maximum number of cookies he would most likely eat?

Please refer to EXCEL for Marginal utility and marginal cost. Cookie Monster will keep eating cookies if marginal utility is higher than marginal cost, and will stop eating if marginal utility is lower than marginal cost. Then by both graph and the table we find that on eating the 7th cookie, his MU falls to zero, which is obviously lower than the marginal cost of 5 cents. Therefore, he would most likely eat 6 coolies.

How would each of the ...

#### Solution Summary

The solution answers the question(s) below.

\$2.19