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Difficulty: MediumLaw of Diminishing Marginal Utility

The table below displays a consumer's utility schedule from consuming consecutive cups of tea:

Quantity (Units)Total Utility (Utils)Marginal Utility (Utils)
12020
23515
345XX
4505
5500
646-4

Based on the table, what is the value of XX (the marginal utility of the 3rd unit), and at which level of consumption does the consumer reach the point of satiety?

  1. X=10X = 10 utils, and the point of satiety is reached at 5 units.Answer
  2. B
    X=15X = 15 utils, and the point of satiety is reached at 4 units.
  3. C
    X=10X = 10 utils, and the point of satiety is reached at 4 units.
  4. D
    X=15X = 15 utils, and the point of satiety is reached at 5 units.

Answer

X=10X = 10 utils, and the point of satiety is reached at 5 units.
The marginal utility of the 3rd unit is calculated as TU3−TU2=45−35=10TU_3 - TU_2 = 45 - 35 = 10 utils. Satiety represents full consumer satisfaction, which occurs at 5 units where total utility reaches its maximum of 50 utils and marginal utility drops to zero.

Step-by-Step Solution

1
Calculate the Marginal Utility (XX) for the 3rd unit consumed.
X=TU3−TU2=45−35=10X = TU_3 - TU_2 = 45 - 35 = 10 utils.
Marginal utility measures the addition to total utility derived from consuming one extra unit of a commodity (MUn=TUn−TUn−1MU_n = TU_n - TU_{n-1}).
2
Determine the point of satiety from the utility schedule.
Satiety occurs at 5 units of consumption, where TU=50TU = 50 (maximum) and MU=0MU = 0.
The point of satiety is defined as the level of consumption where total utility is maximized and marginal utility becomes zero.

Key Concept

Law of Diminishing Marginal Utility and Point of Satiety
Estimated Time:1m 30s
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Topics

Law of Diminishing Marginal Utility

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