1. Suppose that the following table provides a measure of the total utility I gain from the consumption of a series of Large 4-Shot latte's:
|
Large 4-Shot Latte
|
Total Utility of Consumption
|
|
0
|
0
|
|
1
|
30
|
|
2
|
50
|
|
3
|
65
|
|
4
|
75
|
|
5
|
83
|
|
6
|
89
|
|
7
|
93
|
|
8
|
95
|
|
9
|
95
|
|
10
|
90
|
i. Using the information in the table above, calculate the Marginal Utility for each additional unit of consumption of Large 4-Shot Lattes.
ii. Explain briefly the concept of Diminishing Marginal Utility, and how the concept is demonstrated from the answers from part i above?
iii. If each Large 4-Shot Latte is priced at $5.00, calculate the Marginal Utility per dollar spent for each additional Latte consumed.
2. Suppose I also like occasionally to enjoy with each $5.00 Large 4-Shot Lattean Almond Croissant, which sells at $2.50. My budget for consumption is $30.00.
i. Draw approximately to scale a graph illustrating the budget line given the prices of the two goods - Lattes and Almond Croissants.
[NOTE: show Lattes on the VERTICAL AXIS and Croissants on the HORIZONTAL AXIS].
ii. Given the price information provided, what would be the SLOPE of this Budget Line?
iii. If given the choice of buying 3 Lattes and 2 Croissants, 4 Lattes and 4 Croissants, or 5 Lattes and 3 Croissants, which combination should I choose and why? (5 Marks) [Make sure you carefully explain why or why not for EACH of the three combinations].
3. Assuming that I choose your suggested combination from question 2 part iii above:
i. Draw an APPROXIMATE Indifference Curve that indicates this combination as the preferred combination and that conforms to each of the PROPERTIES REQUIRED of an indifference curve.
ii. Choosing one of the other two possible combinations given in question 2 part iii, draw a SECOND indifference curve, again, that conforms to each of the PROPERTIES REQUIRED of an indifference curve. With respect to these TWO Indifference Curves, EXPLAIN briefly how the PROPERTIES REQUIRED are illustrated by these two Indifference Curves.