Question

1. The following table reflects the utility one receives from consuming a given product.

     Units Consumed   Total Utility (TU)       Marginal Utility (MU)

           0                                  0                                -------

           1                                  10                                10

           2                                  ____                            8

           3                                  25                                ____

           4                                  30                                ____

           5                                  ____                            3

           6                                  34                                ____

     a.   Complete the table solving for the missing total utility or marginal utility values in each row.

2. Total utility increases throughout the table. What rate does total utility increase? In other

      words, is it rising at an increasing rate, a decreasing rate, or a constant rate? Explain.

Answer 1

Solution:-

Marginal Utility = Change in Total Utility

Units Consumed	Total Utility	Marginal Utility
0	0	---
1	10	10
2	18	8
3	25	7
4	30	5
5	33	3
6	34	1

Total utility at 2 Unit:-

Marginal Utility = Total Utility current – Total Utility Previous

8 = Total Utility current – 10

Total Utility current = 10 + 8 = 18

Marginal utility at 3 Unit:-

Marginal Utility = 25 – 18 = 7

Marginal utility at 4 Unit:-

Marginal Utility = 30 – 25 = 5

Total utility at 5 Unit:-

Marginal Utility = Total Utility current – Total Utility Previous

3 = Total Utility current – 30

Total Utility current = 30 + 3 = 33

Marginal utility at 6 Unit:-

Marginal Utility = 34 – 33 = 1

A decreasing rate: - Because marginal utility is declining.

As the consumer consume more and more units of a good, the marginal utility from one additional unit of consumption keeps decreasing and hence the total utility increases at a decreasing rate