Homework Answers
(11) (C)
Only Utility curve C depicts the case that with increase in consumption, Total utility is increasing at a decreasing rate (i.e. marginal utility is diminishing).
(12) (B)
Utility is maximized when (MUski / Pski) = (MUskate/Pskate).
Following bundle satisfies this:
Ski = 2, Skate = 2 (with MU/P = 40) and Cost = 10 x 2 + 10 x 2 = 20 + 20 = 40 = Available budget
(13) (C)
Utility is maximized when (MUski / Pski) = (MUskate/Pskate).
Following bundle satisfies this:
Ski = 2, Skate = 4 (with (MUski / Pski = 40/10 = 4, (MUski / Pski) = 20/5 = 4) and Cost = 10 x 2 + 5 x 4 = 20 + 20 = 40 = Available budget
Total utility(ski) = 50 + 40 = 90
Total utility(skate) = 70 + 40 + 30 + 20 = 160
Aggregate utility = Total utility(ski) + Total utility(skate) = 90 + 160 = 250
(14) (B)
Consumer surplus = area between demand curve and price = (1/2) x (30 - 20) x 40 = 20 x 10 = 200
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