ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Illustrate with Example: According to law of diminishing
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- Suppose Lucia has to choose between purchasing high-definition televisions and water. Which of the following is the utility-maximizing rule that Lucia should follow while choosing the optimal quantities of these two goods? (Note: In the answer options that follow, MU stands for "marginal utility.") DO (MU of Water) x (Price of Water) - (MU of HDTVs) x (Price of HDTVs) O MU of Water - MU of HDTVs MU of HDTVs MU of Water Price of HDTVs Price of Water O MU of Water Price of Water MU of HDTVs Price of HDTVs Since water costs little and high-definition televisions are expensive, it must follow that when people choose their optimal quantities of water and high-definition televisions to purchase, the marginal utility they receive from the last high-definition television they buy is than the marginal utility they receive from the last gallon of water they buy.arrow_forwardPositive marginal utility is when the marginal utility increases the total utility whereas negative marginal utility is when the consumption of an additional unit reduces the amount of the total utility. Is it true or false?arrow_forwardCarol has very weird preferences. She only cares about quantity. When evaluating a bundle, Carol only looks at the highest amount of a good she can consume in each bundle, regardless of whether it is of eggs or dumplings. She is indifferent between two bundles only when the largest consumption of a good within each bundle is the same across bundles. So, for instance, if a bundle offers 5 eggs and 1 dumpling she finds that bundle indifferent to a bundle offering 4 eggs and 5 dumplings. These preferences are transitive. But are they monotone? And convex?arrow_forward
- The tables show the utility Parker experienced from consuming varying quantities of waffles and pancakes. Assume that waffles cost $2.00 each, pancakes cost $1.00 each, and that Parker has $8.00 to spend on these two goods. Since Parker cannot afford more than four waffles or eight pancakes, the utility is given only for quantities smaller than these. Quantity of waffles Total utility of waffles Marginal utility of waffles 1 100 100 2 180 80 3 240 60 4 270 30 Quantity of pancakes Total utility of pancakes Marginal utility of pancakes 1 40 40 2 70 30 3 90 20 4 105 15 5 115 10 6 120 5 7 123 3 8 125 2 Given his budget constraint, determine what quantities of waffles and pancakes Parker will consume to maximize utility. quantity of waffles: waffleswaffles quantity of pancakes: pancakesarrow_forwardIf marginal utility is declining but still positive, total utility is increasing. True or false and explainarrow_forwardAssume that the price of oranges is $2 and the price of starfruit is $1. You have $10 of income to spend on both goods, and you intend to spend the entire amount. Note that MU stands for marginal utility. Q of oranges MU from oranges Q of starfruit MU of starfruit 1 $20 1 $12 2 16 2 10 3 12 3 8 4 8 4 6 5 4 5 4 6 0 6 2 To maximize total utility, you would consume _____ oranges and _____ starfruit. Question 25…arrow_forward
- Please see the attached question.arrow_forwardInfo in imagesarrow_forwardRefer to the following table. Suppose strawberries cost $1 and apples cost $2. SHow all the formulas used and your calculations. What is marginal utility (MU) of the 3rd apple? What is marginal utility (MU) of 6th strawberry? What is the marginal utility per dollar spent on the 3th apple? What is the marginal utility per dollar spent on the 6th strawberry? Which of the combinations of strawberries and apples satisfies the following rule? How do you know?arrow_forward
- Which of the following statement is TRUE Group of answer choices As the consumption of a good increases, marginal utility rises, but total utility falls. As the consumption of a good increases, total utility falls and marginal utility falls. As the consumption of a good increases, total utility rises, but marginal utility falls.arrow_forwardTwo students, Nick and Sofia, are discussing normal and inferior goods. Nick says that if Frodo buys more beer when the price of beer goes up, then beer must be an inferior good for Frodo. If, on the other hand, he buys less beer when the price of beer goes up, then beer must be a normal good for Frodo. Sofia disagrees: "Normal and inferior goods are about income changes, not price changes. Therefore, we do not have enough information: beer could be an inferior or normal good in either of these cases." Do you agree or disagree? Carefully explain your point of view. Support your argument with graphs of income, substitution and total effects (please put beer on the horizontal axis and the other goods on the vertical axis). Please assume that Frodo's preferences over beer and other goods are strictly convex and satisfy "more is better" assumption.arrow_forwardQUESTION 4 Linguini and Colette consume only éclair (x,) and profiterole (x2). Linguini has utility function UA = x4x4 and Colette has utility function UB = 2xfx. Linguini is endowed with 10 éclair (x,) and 3 profiterole (x), while Colette is endowed with 20 éclair (x,) and 9 profiterole (x2). (a) Draw an Edgeworth box with x, on the horizontal axis and x, on the vertical axis. Position Linguini on the bottom left corner and Colette on the top right comer. Indicate the total number of units of x, and x2. Label the endowment allocation. (b) Derive the equation of the contract curve, ie., find x(x). In your graph in (a), draw the contract curve.arrow_forward
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