John likes Coca-Cola. After consuming one Coke, John has a total utility of 10 u

Question

John likes Coca-Cola. After consuming one Coke, John has a total utility of 10 utils. After two Cokes, he has a total utility of 30 utils. After three Cokes, he has a total utility of 60 utils. Complete the table below to show John's marginal utility for each Coke. Instructions: Enter your answers as whole numbers. Does John show diminishing marginal utility for Coke, or does he show increasing marginal utility for Coke? Suppose that John has $6 in his pocket. If Cokes cost $2 each and John is willing to spend the money to purchase the first can of Coke, would he spend the money to purchase the second can of Coke, too? What about the third can? If John's marginal utility for Coke keeps on increasing no matter how many Cokes he drinks, would it be fair to say that he is addicted to Coke?

Explanation / Answer

(a) The marginal utility is the addition to the totral utility consequent upon consumption of additional commodity.

MUx= TU/Q

For 1st coke = (10-0)/(1-0) =10

For 2nd Coke= (30-10)/(2-1) = 20

For 3rd Coke= (60-30)/(3-2) =30

(b) For the first three units John shows increasing marginal utility. For 1st Coke 10, for 2nd 20 and for 3rd 30 the MU is increasing with consumption.

(c) at 1st unit of Coke MU=10 and Price=2,

If MU of Coke > Price of Coke 10>2, this shows that consumer has not reached the stage of equilibrium and benefits derived are greater than costs and he goes on buying until the benefits are equal to the costs or the price of the commodity.

So John will buy more of coke that is he will buy 2nd unit of coke for sure

(d) For third can of coke, he bought 2 units and the MU=20 and Price=2 again clearly MU> Price of Coke

Which means that John will buy another can of coke as it will give him more satisfaction than the cost.

(e) If john's Mu goes on increasing, it shows that John is not a rational individual and he has either violated the assumptions of diminishing marginal utility or he may be addicted.

Violation of assumptions of the Law of diminishing MU may include-

Unit of Coke TU MU Zero Coke 0 - First Coke 10 10 (10-0)/(1-0) Second Coke 30 20 (30-10)/(2-1) Third Coke 60 30 (60-30)/(3-2)

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