Consider a buyer whose valuation for successive units of a good is as follows.| q | V(q) | MV(q) ||---|------|-------|| 0 | $0 | – || 1 | $12 | || 2 | $10 | || 3 | $8 | || 4 | $5 | |Here, 'q' represents the quantity of the good. 'V(q)' is the total valuation for that quantity, and 'MV(q)' is the marginal valuation, which is the additional value derived from each successive unit of the good. The table shows how the buyer values different quantities of the good starting from zero units. 3. Suppose that the market price is $ P = \$7 $. In order to maximize his/her gains from trade, how many units does the buyer purchase? Why?

Answered: Consider a buyer whose valuation for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a buyer whose valuation for successive units of a good is as follows.

| q | V(q) | MV(q) |
|---|------|-------|
| 0 | $0 | – |
| 1 | $12 | |
| 2 | $10 | |
| 3 | $8 | |
| 4 | $5 | |

Here, 'q' represents the quantity of the good. 'V(q)' is the total valuation for that quantity, and 'MV(q)' is the marginal valuation, which is the additional value derived from each successive unit of the good. The table shows how the buyer values different quantities of the good starting from zero units.

3. Suppose that the market price is $ P = \$7 $. In order to maximize his/her gains from trade, how many units does the buyer purchase? Why?

Expert Solution

Introduction

A buyer's valuation of a particular unit of good refers to the the value he would get by consuming that. In this manner it also his maximum willingness to pay for that particular unit of the good as he will not be willing to pay anything more than that to get this unit of the good.

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