Question

52. Jason is trying to decide whether to buy a bagel or a muffin for breakfast. The bagel costs $0.50 and

has a marginal utility of 5. The muffin costs $1 and has a marginal utility of 20. Which should he buy and

why?

a. The muffin, because it has a higher marginal utility

b. The muffin, because it has a lower marginal utility

c. The bagel, because it costs less

d. The bagel, because it has a higher marginal utility per dollar

e. The muffin, because it has a higher marginal utility per dollar

53. Derek has $1 to spend at the grocery store. An apple, an orange, and a banana cost $0.50 each. If

Derek’s MUA/PA (ratio of marginal utility to price) of an apple is 45, MUO/PO of an orange is 38, and

MUB/PB of a banana is 52, he will purchase a(n) _____ first and a(n) _____ second.

a. apple; orange

b. orange; apple

c. banana; orange

d. banana; apple

e. orange; banana

54. If an oligopolistic manufacturer believes that he faces a kinked demand curve for his product, he

thinks his competitors will ____ if he lowers his price and ____ if he raises his price.

a. lower their prices; raise their prices.

b. lower their prices; not raise their prices

c. not lower their prices; raise their prices

d. not lower their prices; not raise their prices

55. At his current level of output, a monopolist has an MR of $10, an MC of $6, and an economic profit

of zero. If the market demand curve is downward sloping and his marginal cost curve upward sloping, the

monopolist

a. is producing his profit-maximizing level of output.

b. could increase his profit by increasing his output.

c. could increase his profit by increasing his price.

d. should exit the market if he has positive fixed cost.

Answer 1

52. Utility maximizing condition is when marginal utility per dollar is equal for both goods. Here, we can see that marginal utility per dollar for Bagel= (5/0.50)= 10 and marginal utility per dollar for Muffins = (20/1)= 20. Because MU/P for muffin is higher than MU/P for bagel , so Jason should buy muffin , so that the marginal utility per dollar for muffin would decrease and reach at the utility maximizing level. Hence, option(E) is correct.

53. MUA/PA= 45

MUO/PO = 38

MUB/PB = 52

Utility maximizing condition is when marginal utility per dollar is equal for each goods. Here, marginal utility per dollar is higher for banana and then for apple and lowest for orange. Therefore, to reach at utility maximizing point , Derek will purchase a banana first and an apple second. Hence, option(D) is correct.

54. If an oligopolistic manufacturer believes that he faces a kinked demand curve for his product, he thinks his competitors will lower their prices if he lowers his price and not raise their price if he raises his price. Hence, option(B) is correct.

55. MR=$10 and MC = $6, and an economic profit=0 . If the market demand curve is downward sloping and his marginal cost curve upward sloping, then the monopolist could increase his profit by increasing his output.Hence, option(B) is correct.