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Question 1 (a) Assume only Product ABC and Product XYZ are available in the market and the marginal utility for each good at different quantities
Question 1 (a) Assume only Product ABC and Product XYZ are available in the market and the marginal utility for each good at different quantities is shown as follows: Quantity (in units) Marginal Utility Product ABC Product XYZ 106 88 100 81 88 72 76 60 5 53 55 (i) Based on the table above, explain and illustrate the law of diminishing marginal utility. (4 marks) (ii) Assume the prices of both products are RM10 per unit respectively. Determine the quantities of Product ABC and Product XYZ that Cayden should purchase to maximise his utility. (6 marks) (iii) Determine the income needed for Cayden to purchase the combination of goods in part (ii) (2 marks) (iv) Based on the answer in part (ii), calculate the total utility that will be enjoyed by Cayden. (2 marks) (v) Based on the answer in part (ii), explain how Cayden will alter his consumption to attain utility maximisation, if the price of Product ABC increases from RM10 to RM12. (4 marks) (b) Hisham owns a factory producing furniture. He is planning to expand production to attain the long run production goal and enjoy the benefits of economies of scale. Using an appropriate diagram, explain how Hisham decides on the different plant sizes to be used for different quantity of output in short run to attain the long run production goal. (7 marks) [Total: 25 marks]
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