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Managerial Economics Consumer Behavior

Managerial Economics Consumer Behavior.

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Managerial Economics Consumer Behavior

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  1. Managerial Economics Consumer Behavior Assume that an individual consumes three goods, X, Y, and Z. The marginal utility (assumed measurable) of each good is independent of the rate of consumption of other goods. The prices of X, Y, and Z are, respectively, $ 1, $ 3, and $ 5. The total income of the consumer is $ 65, and the marginal utility schedule is as follows: Marginal MarginalMarginal Units of utility of X utility of Y utility of Z good (units) (units) (units) 1 12 60 70 2 11 55 60 3 10 48 50 4 9 40 40 5 8 32 30 6 7 24 25 7 6 21 18 8 5 18 10 9 4 15 3 10 3 12 1 a. Given a $ 65 income, how much of each good should the consumer purchase to maximize utility? b. Suppose income falls to $ 43 with the same set of prices; what combination will the consumer choose? Dr. C. Chen

  2. Managerial Economics Consumer Behavior Marginal MarginalMarginalMarginalMarginalMarginal Units of utility of X utility of Y utility of Z utility per dollar utility per dollar utility per dollar good (units) (units) (units) of X (MU/$1) of Y (MU/$3) of Z (MU/$5) 1 12 60 70 12 20 14 2 11 55 60 11 18.3 12 3 10 48 50 10 16 10 4 9 40 40 9 13.3 8 5 8 32 30 8 10.7 6 6 7 24 25 7 8 5 7 6 21 18 6 7 3.6 8 5 18 10 5 6 2 9 4 15 3 4 5 0.6 10 3 12 1 3 4 0.5  a. Given a $ 65 income, how much of each good should the consumer purchase to maximize utility? There are two steps to search the utility-max consumption bundle: (1) all MU/P should be equal (2) spend all budget (income). When MU/P=5, the consumption bundle (8X, 9Y, 6Z) costs $65 exactly (i.e. 8*$1+9*$3+6*$5 =$65). Dr. C. Chen

  3. Managerial Economics Consumer Behavior Marginal MarginalMarginalMarginalMarginalMarginal Units of utility of X utility of Y utility of Z utility per dollar utility per dollar utility per dollar good (units) (units) (units) of X (MU/$1) of Y (MU/$3) of Z (MU/$5) 1 12 60 70 12 20 14 2 11 55 60 11 18.3 12 3 10 48 50 10 16 10 4 9 40 40 9 13.3 8 5 8 32 30 8 10.7 6 6 7 24 25 7 8 5 7 6 21 18 6 7 3.6 8 5 18 10 5 6 2 9 4 15 3 4 5 0.6 10 3 12 1 3 4 0.5 b. Suppose income falls to $ 43 with the same set of prices; what combination will the consumer choose? When MU/P=8, the consumption bundle (5X, 6Y, 4Z) costs $43 exactly (i.e. 5*$1+6*$3+4*$5 =$43). Dr. C. Chen

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