Question

2. The utility schedule of a consumer for a brand of ice cream is shown in the table below.
Units Consumed(Q): 0,1,2,3,4,5,6,7
Total Utility (TU): 0,10,19,P,30,31,Q,29
Marginal Utility (MU): -,10,R,6,5,S,0,-2
Use the information to answer the questions that follow:
(a) Calculate the values of P, Q, R and S
(b) Given that the price of ice cream is $1.00 per unit, at what level of consumption is the consumer in equilibrium? Explain your answer
(c) Using a graph sheet, draw the marginal-utility curve

Accepted Answer

(a) MU = (T2-T1)/(Q2-Q1)
At Q3=3: T2=P, T3=19 and MU3=6 → MU3 = (P-19)/(3-2) = 6 → P = 6+19 = 25

At Q6=6: T6=Q, T5=3, and MU6=0 → 0 = (Q-31)/(6-5) → Q = 31

At Q2=2: T2=19, T1=10, and MU2=R → R = (19-10)/(2-1) = 9

At Q5=5: T5=31, T4=30, and MU5=S → S = (31-30)/(5-4) = 1

So P=25, Q=31, R=9, S=1

(b) The consumer is at equilibrium at the fifth (5th) unit of consumption. Consumer equilibrium for a single unit is achieved where the last naira spent is equal to the marginal utility, i.e. at the 5th unit of consumption, MU = P = $1

(c) A graph should be drawn plotting Marginal Utility (MU) on the y-axis against Units Consumed (Q) on the x-axis, showing a downward sloping curve consistent with the law of diminishing marginal utility.

WAEC Economics 2016 Theory — Question 2

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