Question

3. Think about you benefit from food. Let c be the market value of the amount of food you have in a given day and u(c) the utility from consuming c.

(B) If you have enough money to consume C in a week, how much would you spend each day? Is this consistent with your plot?

Answer 1

As we increase the consumption of the food, the total utility keeps on increasing, But the marginal utility derived by consumption of each successive unit keeps on reducing. This principle is called as diminishing marginal utility. The person will consume that many number of units where the marginal utility equals the price of the product.

For the products which are expensive, the price and marginal utility equals quickly and thus less number of units are consumed. For the products which are priced less, the price and marginal utility equals at a later stage and thus more number of units are consumed.