Question

Calculate Marginal Utility and Average Utility from the information given in the below table: (5 Marks) Quantity Consumed Total Utility 1 .20 2. 35 3. 47 4. 55 5. 60 ​

Answer 1

Answer:

Two goods have a cross-price elasticity of demand of +1.2 (a) would you describe the 

goods as substitutes or complements? (b) If the price of one of the goods rises by 5 per 

cent, what will happen to the demand for the other good, holding other factors constant?

(5 Marks)

Answer 2

Given:

The quantity consumed = 1, 2, 3, 4, 5.

Total Utility= 20, 35, 47, 55, 60.

To find:

marginal utility

average utility

Solution:

The quantity consumed = 1, 2, 3, 4, 5.

Total Utility= 20, 35, 47, 55, 60.

The formula for marginal utility:

$marginal \: utility \\ = \frac{change \: in \: total \: utility}{change \: in \: the \: units \: consumed}$

We will first find the marginal Utility for all the quantities consumed individually using the above formula.

let the marginal Utility be 'm'

$m1 = > \frac{20}{1} = 20$

$m2 = > \frac{35 - 20}{1} = 15$

$m3 = > \frac{47 - 35}{1} = 12$

$m4 = > \frac{55 - 47}{1} = 8$

$m5 = \frac{60 - 55}{1} = 5$

Therefore, the marginal utility is 20, 15, 12, 8, 5.

Average Utility.

The formula for average Utility is:

$average \: utility = \frac{total \: utility}{number \: of \: units \: consumed}$

Now, let's find the average Utility for the consumed commodity individually using the above formula.

let the average Utility be 'a'.

$a1 = > \frac{20}{1} = 20$

$a2 = > \frac{35}{2} = 17.5$

$a3 = > \frac{47}{3} = 15.667$

$a4 = > \frac{55}{4} = 13.75$

$a5 = \frac{60}{5} = 12$

Therefore, the average Utility is 20, 17.5, 15.667, 13.75, 12.