marginal utility essay In this Assessment, you will demonstrate your understanding of marginal utility and the law of diminishing marginal utility, as well as how the concept of marginal utility affects people’s buying decisions. You will demonstrate your understanding and ability to correctly calculate price elasticity of demand, as well as your understanding of how price elasticity of demand estimates can predict changes in revenue. You will also demonstrate your understanding of how purchasing decisions are based on the theory of consumer surplus.

Directions:

Using the Word template provided, answer the following questions based on the situation.

Questions

⦁ 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 (somewhat healthy) and an order of fries (not so healthy). As she sits down to eat them, a Kaplan 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, 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.

marginal utility essay

Below is the Kaplan student’s completed experiment tally sheet of Jane’s marginal utility “scores” and the calculation of her marginal utility per dollar, given that each sandwich is priced at $4.00 and each order of fries is priced at $2.00, along with her budget of $20. The student filled in the shaded cells based on Jane’s responses, then computed the values in the remaining cells. Using this information, answer the following questions:

⦁ 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.

⦁ 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.

marginal utility essay

⦁ The accompanying table shows the price and monthly demand for barrels of gosum berries in Gondwanaland.

Price of gosum berries per barrel 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 does this estimate imply about the price elasticity of demand of gosum berries? If producers want to increase revenue in this price range, should they increase or lower prices? Explain why.

⦁ 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 does this estimate imply about the price elasticity of demand of gosum berries? If producers want to increase revenue in this price range, should they increase or lower prices? Explain why.

marginal utility essay

⦁ Notice that the estimates from (a) and (b) above are different. Why do price elasticity of demand estimates change along the demand curve?

⦁ Brandon and his family often rent movies from the new Internet movie streaming service, Xanadu®. The table below shows Brandon’s demand schedule for eight movie rentals that Brandon’s family is interested in watching.

Number of internet video rentals Willingness to pay each rental

1st movie rental $7

2nd movie rental $6

3rd movie rental $5

4th movie rental $4

5th movie rental $3

6th movie rental $2

7th movie rental $1

8th movie rental $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 yearly subscription fee of $25.00, how many movie rentals will Brandon download and how much consumer surplus will Brandon receive? Explain your answer.

marginal utility essay

⦁ If the Xanadu online service offers as many movie rentals as the customer wants to download, all for a one-time yearly subscription fee of $35.00, how many movie rentals will Brandon download and how much consumer surplus will Brandon receive? Explain your answer.

⦁ If the Xanadu’s market research showed that Brandon’s demand represented what most of Xanadu’s customers wanted, what would be the most that Xanadu could charge as a one-time annual fee for all the downloads that the customer wanted?

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