Multiple Choice
Hollywood Slim consumes movies and popcorn. If his marginal utility per dollar from movies is 8 and his marginal utility from popcorn is 7,
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18. Consumer Choice and Behavioral Economics
Consumer Optimum Consumption: Marginal Utility per Dollar Spent
Multiple Choice
As Caffeinated Carl consumes additional cups of coffee, his
A
Marginal utility from coffee increases
B
Marginal utility from coffee decreases
C
Total utility from coffee decreases
D
Both (b) and (c) are correct
Verified step by step guidance1
Understand the concept of Marginal Utility: Marginal utility refers to the additional satisfaction or benefit (utility) that a consumer derives from consuming an additional unit of a good or service.
Recognize the Law of Diminishing Marginal Utility: This law states that as a person consumes more units of a good, the additional satisfaction gained from consuming each additional unit tends to decrease.
Apply the Law of Diminishing Marginal Utility to the problem: As Caffeinated Carl consumes more cups of coffee, according to the law, his marginal utility from each additional cup should decrease, not increase.
Evaluate the given options: The correct understanding is that the marginal utility from coffee decreases as more is consumed, which aligns with option (b).
Consider the implications on total utility: While marginal utility decreases, total utility can still increase as long as marginal utility is positive, but it will eventually decrease if marginal utility becomes negative.
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