Question
Teachers at the local school have contacted the company We R' Write with a complaint. Teachers noticed that when We R' Write sold individual pencils,
Teachers at the local school have contacted the company We R' Write with a complaint. Teachers noticed that when We R' Write sold individual pencils, students made sure to take care of the pencils. However, when the company started selling larger packages of pencils, students started needlessly breaking their pencils, using them for purposes other than doing school work, or even just throwing them away. You have been provided with information regarding the quantity and total utility gained from students purchasing different numbers of pencils that is presented in Table 1 below. Table 2 provides information concerning pens, which will be used to answer the question in the third bullet below.
Explain the law of diminishing marginal utility from the standpoint of economic theory as it applies to the situation described in the scenario.
Explain what specifically We R' Write should understand about marginal utility as the quantity consumed increases that would explain why students become more reckless with their pencils when they purchase more. Make sure to use economic concepts in your answer. Also, use the table below as a guide to help you explain this behavior to We R' Write so they can relate the information to the teachers.
Using the table below and economic theory, what combination of pencils and pens would maximize utility? Briefly explain how you determined this point.
Table 1. Utility Associated With Consuming Pencils
Quantity of Pencils Consumed | Total Utility | Marginal Utility | Individual Pencil Price | Marginal Utility per Dollar for Pencils |
0 | 0 | --- | --- | --- |
10 | 50 | 5 | $0.25 | $1.25 |
20 | 93 | 4.3 | $0.25 | $1.08 |
30 | 127 | 3.4 | $0.25 | $0.85 |
40 | 151 | 2.4 | $0.25 | $0.60 |
50 | 165 | 1.4 | $0.25 | $0.35 |
60 | 173 | 0.8 | $0.25 | $0.20 |
70 | 180 | 0.7 | $0.25 | $0.18 |
Table 2. Utility Associated With Consuming Pens
Quantity of Pens Consumed | Total Utility | Marginal Utility | Individual Pen Price | Marginal Utility per Dollar for Pens |
0 | 0 | --- | --- | --- |
2 | 3.00 | 1.500 | $3.50 | $5.25 |
4 | 3.45 | 0.225 | $3.50 | $0.79 |
6 | 3.89 | 0.220 | $3.50 | $0.77 |
8 | 4.31 | 0.210 | $3.50 | $0.73 |
10 | 4.65 | 0.170 | $3.50 | $0.60 |
12 | 4.94 | 0.145 | $3.50 | $0.51 |
14 | 5.15 | 0.105 | $3.50 | $0.37 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Econometrics By Example
Authors: Damodar Gujarati
2nd Edition
1137375019, 9781137375018
