Chapter 7, Problem 1DQ

(a):

To determine

Calculation of total utility and marginal utility.

Explanation of Solution

The total utility can be calculated by adding up the marginal utilities and the marginal utility can be calculated by subtracting the total utility at the previous unit consumed from the total utility at the present consumption.

The total utility and the marginal utility at 1 unit consumption are 10 and the marginal utility from the 2^nd unit is 8. Thus, the total utility at the 2^nd unit can be thus calculated by adding up the marginal utilities as follows:

$\begin{array}{c}\text{Total utility at 2nd unit}=\text{Marginal Utility at 1st unit}+\text{Marginal utility at 2nd unit}\\ =10+8\\ =18\end{array}$

Thus, the total utility at the 2^nd unit of consumption is 18 utils.

The total utility at 2^nd unit is calculated as 18. The total utility at the 3^rd unit is given as 25. Thus, the marginal utility of the 3^rd unit can be calculated as follows:

$\begin{array}{c}\text{Marginal utility of 3rd unit}=\text{Total utility of 3rd unit}-\text{Total utility of 2nd unit}\\ =25-18\\ =7\end{array}$

Thus, the marginal utility of the 3^rd unit is 7 utils.

Similarly, the total utility at the 4^th unit is 30 and the 3^rd unit is 25. The marginal utility of the 4^th unit can be calculated using the same equation as follows:

$\begin{array}{c}\text{Marginal utility of 4th unit}=\text{Total utility of 4th unit}-\text{Total utility of 3rd unit}\\ =30-25\\ =5\end{array}$

Thus, the marginal utility of the 4^th unit is 5 utils.

The total utility at the 4^th unit is given as 30 utils. The marginal utility from the 5^th unit is given as 3. So, the total utility from the 5^th unit can be calculated by adding these two together as follows:

$\begin{array}{c}\text{Total utility of 5 units}=\text{Total utility of 4 units}+\text{Marginal utility of 5th unit}\\ =30+3\\ =33\end{array}$

Thus, the total utility of 5 units is 33 utils.

The total utility of 6 units is given as 34. The total utility of 5 units is calculated as 33. Thus, the marginal utility of the 6^th unit can be calculated as follows:

$\begin{array}{c}\text{Marginal utility of 6th unit}=\text{Total utility of 6th unit}-\text{Total utility of 5th unit}\\ =34-33\\ =1\end{array}$

Thus, the marginal utility of 6^th unit is 1 util.

Thus, the table can be filled as follows:

Units consumed	Total utility	Marginal utility
0	0	0
1	10	10
2	18	8
3	25	7
4	30	5
5	33	3
6	34	1

The marginal utility starts from 10 and it starts to decline from 10 to 1, at the end. The marginal benefit thus shows a decline. Since the total utility is the addition of marginal utilities, because of the decline in the marginal utility, the total utility increases but at a diminishing rate.

Economics Concept Introduction

Utility: It can be described as the benefit or the satisfaction that the consumption of a good or service provides to the consumer.

Total utility: It is the summation of all utilities derived, by the consumer, from the consumption of the individual units of a specific good or service.

Marginal utility: It is the extra satisfaction that a consumer derives from the consumption of an additional unit of the specific good or service.

(b):

To determine

Acceptability of the statement.

Explanation of Solution

The rational consumers in the economy try to maximize the total utility that they derive from the consumption of the goods and services. Thus, the decline in the marginal utility is not the reason which determines the quantity demanded. Thus, the individuals will try to maximize the total utility and thus, the statement is not agreeable. The marginal utility beyond the 1^st unit may be sufficiently great in terms of price. As a result, people will demand beyond the 1^st unit. Thus, the statement is not agreeable.

(c):

To determine

Whether the given statement is acceptable.

Explanation of Solution

People compare the level of utility that they receive from the consumption of the goods and services with their respective prices. When the price of the commodity or service is higher than the total utility that the consumer receives from the very first unit of consumption, the rational consumer may decide not to purchase the item. Thus, the statement is agreeable.