19. The principle of diminishing marginal utility is used to explain whi a of th

Question

19. The principle of diminishing marginal utility is used to explain whi a of the following? '" why costs. eventaally iise i any production situation a. b. why a second glss of water consumed by someone who has jast spent six hour in ther desert has less value than the firi;tJ1ass of water consuned c. why the additions to output wi1l eventually decline as mcr d. all of the above should nevar increasa yous price if: variable factars of production are added to a fixed facter of production 20. As a business executive iaterested in raising your total revrnue, you a. the demand curva fori your product is a straight line b. the demand curve for your product is not a straight 1.ne c.you ace already charging a price that is below the nidpoint on a d. none curved demand function 21. Suppose that socks cost 1 a pair and that shoes cost $ a pair. Also assume that you would get 10 units of marginal utility from arn additional pair of socks and 50 units of marginal utilicy from an additional pair of shoes. In an attempt to move towar! consumer equilibriura, you shoulds buy an additional pair of shoes because the marginal utility derived from shoes is greater than the marginal utility derived a. b. buy an additional pair of socks because they cost less than an c. buy an additional pair of shoes because the total utility derive d. purchase an additional pair of socks because the marginal utilit from socks additional pair of shoes from shoes will always exceed the total utility from socks per dollar is greater for soaks than for shoe s

Explanation / Answer

19. (b) since the theory of diminishing marginal utility states that as more and more of a good is consumed by a person, it’s utility to him diminishes.

21. (a) At equilibrium, Marginal utility from shoes/ price of shoes = Marginal utility from socks / price of socks. Here, since marginal utility derived from shoes is greater than the marginal utility from socks hence, in order to move towards equilibrium additional shoes must be bought so that marginal utility of shoes fall by diminishing marginal utility theory and equilibrium is achieved.

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