Q: If Lisa's utility function for pizzas ($Z$) and burritos ($B$) is $U(Z,B) = \sqrt{ZB}$, what is her utility from a bundle with 16 pizzas and 9 burritos?

$U(16,9) = \sqrt{16 \times 9} = 12$

Question 1

Lisa has $40 to spend each month. The price of a movie is $8 and the price of a case of cola is $4. Which equation represents her budget constraint?

Accepted Answer

$8Q_m + 4Q_c = 40$

Question 2

If Lisa's utility function for pizzas ($Z$) and burritos ($B$) is $U(Z,B) = \sqrt{ZB}$, what is her utility from a bundle with 16 pizzas and 9 burritos?

Accepted Answer

$U(16,9) = \sqrt{16 	imes 9} = 12$

Question 3

Which of the following best describes the law of diminishing marginal utility?

Accepted Answer

As a person consumes more of a good, the extra utility from each additional unit decreases.

Question 4

Lisa's marginal utility from movies ($MU_m$) is 20 and the price of a movie ($P_m$) is $8. Her marginal utility from cola ($MU_c$) is 16 and the price of cola ($P_c$) is $4. Which good should Lisa buy more of to maximize her total utility?

Accepted Answer

Cola, because $MU_m/P_m = 2.5$ and $MU_c/P_c = 4$, so she should buy more cola.

Question 5

What is consumer equilibrium in the context of utility maximization?

Accepted Answer

The point where the consumer has spent all income and $MU_m/P_m = MU_c/P_c$ for all goods.

Question 6

If the price of cola rises from $4 to $8 per case, what is the predicted effect on Lisa's consumption according to marginal utility theory?

Accepted Answer

Lisa will buy less cola and more movies to restore $MU_m/P_m = MU_c/P_c$.

Question 7

Suppose Lisa's marginal utility from the 3rd movie is 30 and from the 3rd case of cola is 24. If the price of a movie is $8 and the price of cola is $4, what is the marginal utility per dollar for each good?

Accepted Answer

Movies: $30/8 = 3.75$, Cola: $24/4 = 6$

Question 8

If Lisa's income increases from $40 to $56 per month, what is the expected change in her consumption of movies and cola?

Accepted Answer

She will buy more of both movies and cola, since both are normal goods.

Question 9

Which of the following statements about ordinal and cardinal utility is correct?

Accepted Answer

Ordinal utility ranks bundles but does not measure how much more one is preferred; cardinal utility measures absolute differences.

Question 10

Given the utility-maximizing rule, which of the following must be true at the consumer's equilibrium?

Accepted Answer

$\frac{MU_m}{P_m} = \frac{MU_c}{P_c}$

Question 11

Lisa is considering buying more movies. If $MU_m/P_m > MU_c/P_c$, what should she do to maximize her total utility?

Accepted Answer

Buy more movies and less cola until $MU_m/P_m = MU_c/P_c$.

Question 12

If Lisa's total utility from 2 movies is 90 and from 6 cases of cola is 225, what is her total utility from this combination?

Accepted Answer

315

Question 13

Which of the following is NOT a prediction of marginal utility theory when the price of a good falls?

Accepted Answer

The consumer buys less of the cheaper good.

Question 14

Suppose Lisa's marginal utility from the 4th case of cola is 20 and the price of cola is $4. What is the marginal utility per dollar for the 4th case?

Accepted Answer

$5$

Question 15

If Lisa spends all her income on movies and cola, which of the following combinations is affordable if she buys 3 movies and 4 cases of cola? (Movies: $8$ each, Cola: $4$ each, Income: $40$)

Accepted Answer

Yes, because $8 	imes 3 + 4 	imes 4 = 24 + 16 = 40$

Question 16

Which of the following best explains why the demand curve slopes downward according to marginal utility theory?

Accepted Answer

As the price of a good falls, the marginal utility per dollar increases, leading consumers to buy more.

Question 17

If Lisa's marginal utility from the 5th movie is 10 and the price of a movie is $8, what is the marginal utility per dollar for the 5th movie?

Accepted Answer

$1.25$

Question 18

Which of the following is a real-world example of diminishing marginal utility?

Accepted Answer

Eating slices of pizza: the first slice gives more satisfaction than the fifth.

Question 19

If Lisa's marginal utility per dollar for movies is less than for cola, what should she do to maximize her utility?

Accepted Answer

Buy less movies and more cola.

Utility and Demand: Marginal Utility Theory and Consumer Choice

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