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# Economics_SL8

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```									            Economics

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Sub: Economics                                                                        Topic: Micro Economics

Question:

Deriving Marginal Utility From Consumption of Goods.
Optimal Expenditure. Consider the following data:

Goods (G)           Services (S)
Units Total Utility Units Total Utility
1         150        1          95
2         285        2         185
3         405        3         270
4         480        4         345
5         525        5         400

A. Construct a table showing the marginal utility derived from the consumption of goods and
services. Also show the trend in marginal utility per dollar spent (the MU/P ratio) if PG = \$30
and PS = \$20.
B. If two units of goods are consumed, what level of services consumption could also be justified?
C. If four units of services are consumed, what level of goods consumption could also be
justified?
D. What is the optimal allocation of a \$150 budget?

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*The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
submitting the same in lieu of their academic submissions for grades.
Sub: Economics                                                                            Topic: Micro Economics

Solution:

A)

A) Goods                                            Service
Units TU          MU(G) MU/P ratio (G) Units TU                       MU(S) MU/P ratio (S)
1                 150                               1                 95
2          285 135            4.5                   2         185 90             4.5
3          405 120            4                     3         270 85             4.25
4          480 75             2.5                   4         345 75             3.75
5          525 45             1.5                   5         400 55             2.75

www.classof1.com/homework-help/economics
*The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
submitting the same in lieu of their academic submissions for grades.
Sub: Economics                                                                        Topic: Micro Economics

(B) If two units of goods are consumed, the service consumption would also be two units, because the
marginal utility per dollar spent is equal for both.

(C) If four units of services are consumed; the goods consumption will be zero, because after
consuming the service he will be having just \$20 remaining. And, the given price of the good per unit
is \$30. So he couldn’t buy any goods after consuming the Service.

(D) Three units of goods and three units of services will be the optimal level of consumption when the
consumer is spending \$150, because at this point the consumer is getting maximum satisfaction with
given income.

www.classof1.com/homework-help/economics
*The Homework solutions from Classof1 are intended to help students understand the approach to solving the problem and not for
submitting the same in lieu of their academic submissions for grades.
Sub: Economics
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