The new episode of Baskets just came out. You have watched it six times today and experienced the units of utility per listen shown below:
| LISTEN | UTILITY |
| 1 | 20 |
| 2 | 19 |
| 3 | 16 |
| 4 | 11 |
| 5 | 4 |
| 6 | -5 |
Solution
| Listen | Marginal Utility | Total Utility |
| 1 | 20 | 20 |
| 2 | 19 | 39 |
| 3 | 16 | 55 |
| 4 | 11 | 66 |
| 5 | 4 | 70 |
| 6 | -5 | 65 |
1) Using excel or neatly creating by hand and scanning, draw a graph (as seen in the assigned learning materials for the week) showing marginal utility based on the material above. Explain what it means with specific reference to the numbers used in the graph.
2) Create a graph of total utility. Explain what it means based on the numbers calculated.
3) In order to maximize utility, how many times should the show be watched? Provide an explanation.
Utility maximization is related to total utility. For instance, utility maximizes when the total utility is at its maximum. Utility maximizes by listening to the show for the 5th time, where the total utility is 70. Therefore, in order to maximize utility, the show must be watched at least 5 times. At this stage, the marginal utility will be only 4.
4) In terms of utility, what could motivate you to switch from another activity and begin watching the show?
The decision about switching to another show will be based on marginal and total utility. Also, budget/cost also plays a part in substitution from one product or service to another product or service. Also, the price also affects decision about choosing a particular good or service. Therefore, in choosing a particular good or service Income and Price strongly influence the decision. Marginal utility theory also considers price as a relevant factor. In fact, Marginal Utility explains utility maximization through this mathematical expression; MUx/Px = MUy/Py.
5) How can marginal utility be used as a guiding principle when deciding how many people your firm should hire? Provide an original example.
How much labor a firm must hire depends entirely on the marginal product of labor. When Marginal Product of Labor becomes equal to Marginal Factor Cost, a firm must stop hiring labor or people. For instance, when the Marginal product of Labor, say $25, becomes equal to Marginal Factor Cost, say it $25, a firm must stop hiring any additional unit of labor.
+447462439809