Analysis and Mathematical Modeling of Consumer Behavior Essay

709 Words 3 Pages
hapter 8 Homework (EXPLAIN YOUR ANSWERS)

One point questions:

1. a) How can time be incorporated into the theory of consumer behavior (think opportunity costs)?
Time also has a value, so it also should be considered in decision making and utility maximization. The total price of a product should also include the time spent in consuming the product. (how much you make per hour). Usually when people consider their time, their consumer behavior appears to be more rationale. b) Explain the following comment: “Want to make millions of dollars? Devise a product that saves Americans lots of time.” Time is money. The point of this expression is for a person who can make so much per hour, every hour spent not working is so much
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At which rate is total utility increasing: a constant rate, a decreasing rate, or an increasing rate? How do you know?
A decreasing rate because marginal utility is declining.
b. “A rational consumer will purchase only 1 unit of the product represented by these data, since that amount maximizes marginal utility.” Do you agree? Explain why or why not.
Disagree. Because consumers are interested in maximizing total utility not marginal utility.
c. “It is possible that a rational consumer will not purchase any units of the product represented by these data.” Do you agree? Explain why or why not.
I agree. The costumer would buy none of the products if their price would be so high relative to the first unit's marginal utility.

4. Mrs. Wilson buys loaves of bread and quarts of milk each week at prices of $2.00 and $1.50, respectively. At present she is buying these two products in amounts such that the marginal utilities from the last units purchased of the two products are 80 and 75 utils, respectively. Is she buying the utility‑maximizing combination of bread and milk? If not, how should she reallocate her expenditures between the two goods?
No she is not because the marginal utility per cent spent on each product is not equal. She should buy more milk and less bread.

5. Schools Get a Lesson in Lunch Line

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