Question

2. (5 pts each) Suppose the DJ of a radio station has six concert tickets to split between four winners of their annual costume contest. The utility of each consecutive concert ticket for each person is given below (e.g., the first ticket allows the person to go to the concert and the second, third and fourth tickets could be given to their friends). The DJ is a utilitarian. Utility per ticket Mike Jon Trey Page 1st 2nd 3rd 4th 555 333 700 500 85 85 500 85 60 75 85 80 50 65 70 75 a) Notice each person gets the most utilty from the first ticket and each extra ticket yields a little less utility. What economic concept does this reflect? b) How would a utilitarian DJ distribute the six tickets? c) If instead, Jon received 800 units of utility from the first ticket, how would this change the optimal utilitarian distribution?

Answer 1

Ans.(a) It reflects the law of diminishing marginal utility.Law of diminishing marginal utility states that marginal utility derived from consumption of a good decreases as more units of that good are consumed,ceteris paribus.

Ans.(b) DJ will distribute tickets according to the utility enjoyed by the persons i.e. 1st ticket will be distributed to the person who enjoys highest utility , 2nd ticket will be distributed to the person who enjoys second highest utility and so on.Following table shows the distribution of tickets:

TICKET NO.	PERSON
1	TREY
2	MIKE
3	PAGE or TREY
4	TREY or PAGE
5	JON
6	ANYONE OF THEM

Note that 6th ticket can be distributed to anyone of them since each of them derives same utility from next ticket i.e.85.3rd ticket can be distributed to PAGE or TREY since each of them derives same utility from next ticket i.e500. 4th ticket will be distribued to that person out of page and trey who doesn't get 3rd ticket.

Ans.(C) If JOHN receives 800 utility from the first ticket then the following table shows the distribution of tickets:

TICKET NO.	PERSON
1	JON
2	TREY
3	MIKE
4	PAGE OR TREY
5	TREY OR PAGE
6	ANYONE OF THEM

If you have any doubt,feel free to ask.