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Consumer Choice and Utility Maximization

Consumer Choice and Utility Maximization. The Law of Diminishing “ADDITIONAL” “SATISFACTION”. Thinking at the Margin. Would you see the movie three times? Notice that the total benefit is more than the total cost but you would NOT watch the movie the 3 rd time. Calculate Marginal Utility.

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Consumer Choice and Utility Maximization

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  1. Consumer Choice and Utility Maximization

  2. The Law of Diminishing “ADDITIONAL” “SATISFACTION”

  3. Thinking at the Margin Would you see the movie three times? Notice that the total benefit is more than the total cost but you would NOT watch the movie the 3rd time.

  4. Calculate Marginal Utility How many pizzas would you buy if the price per slice was $2?

  5. Calculate Marginal Utility How many pizzas would you buy if the price per slice was $2?

  6. Calculate Marginal Utility You will continue to consume until Marginal Benefit = Marginal Cost How many pizzas would you buy if the price per slice was $2?

  7. CONSUMER BEHAVIOR You plan to take a vacation and want to maximize your utility. Based on the info below, which should you choose?

  8. CONSUMER BEHAVIOR You plan to take a vacation and want to maximize your utility. Based on the info below, which should you choose? Calculating Marginal Utility Per Dollar allows you to compare products with different prices.

  9. Utility Maximization $10 $5 If you only have $25, what combination of movies and go carts maximizes your utility?

  10. Utility Maximization $10 $5 If you only have $25, what combination of movies and go carts maximizes your utility?

  11. Utility Maximization $10 $5 If you only have $25, what combination of movies and go carts maximizes your utility?

  12. Utility Maximization $10 $5 If you only have $25, what combination of movies and go carts maximizes your utility?

  13. Utility Maximizing Rule The consumer’s money should be spent so that the marginal utility per dollar of each goods equal each other. MUx = MUy Px Py Assume apples cost $1 each and oranges cost $2 each. If the consumer has $7, identify the combination that maximizes utility.

  14. Utility Maximizing Rule The utility maximizing rule assumes that you always consume where MU/P for each product is equal 14

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