Teachers at the local school have contacted the company We R' Write with a complaint. Teachers noticed that when We R' Write sold individual pencils, students made sure to take care of the pencils. However, when the company started selling larger packages of pencils, students started needlessly breaking their pencils, using them for purposes other than doing school work, or even just throwing them away. You have been provided with information regarding the quantity and total utility gained from students purchasing different numbers of pencils that is presented in Table 1 below. Table 2 provides information concerning pens, which will be used to answer the question in the third bullet below. Explain the law of diminishing marginal utility from the standpoint of economic theory as it applies to the situation described in the scenario. Explain what specifically We R' Write should understand about marginal utility as the quantity consumed increases that would explain why students become more reckless with their pencils when they purchase more. Make sure to use economic concepts in your answer. Also, use the table below as a guide to help you explain this behavior to We R' Write so they can relate the information to the teachers. Using the table below and economic theory, what combination of pencils and pens would maximize utility? Briefly explain how you determined this point.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter20: Consumer Choice: Maximizing Utility And Behavioral Economics

Section20.1: Utility Theory

Problem 2ST

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Teachers at the local school have contacted the company We R' Write with a complaint. Teachers noticed that when We R' Write sold individual pencils, students made sure to take care of the pencils. However, when the company started selling larger packages of pencils, students started needlessly breaking their pencils, using them for purposes other than doing school work, or even just throwing them away. You have been provided with information regarding the quantity and total utility gained from students purchasing different numbers of pencils that is presented in Table 1 below. Table 2 provides information concerning pens, which will be used to answer the question in the third bullet below. Explain the law of diminishing marginal utility from the standpoint of economic theory as it applies to the situation described in the scenario. Explain what specifically We R' Write should understand about marginal utility as the quantity consumed increases that would explain why students become more reckless with their pencils when they purchase more. Make sure to use economic concepts in your answer. Also, use the table below as a guide to help you explain this behavior to We R' Write so they can relate the information to the teachers. Using the table below and economic theory, what combination of pencils and pens would maximize utility? Briefly explain how you determined this point. Table 1. Utility Associated With Consuming Pencils Quantity of Pencils Consumed Total Utility Marginal Utility Individual Pencil Price Marginal Utility per Dollar for Pencils 0 0 --- --- --- 10 50 5 $0.25 $1.25 20 93 4.3 $0.25 $1.08 30 127 3.4 $0.25 $0.85 40 151 2.4 $0.25 $0.60 50 165 1.4 $0.25 $0.35 60 173 0.8 $0.25 $0.20 70 180 0.7 $0.25 $0.18 Table 2. Utility Associated With Consuming Pens Quantity of Pens Consumed Total Utility Marginal Utility Individual Pen Price Marginal Utility per Dollar for Pens 0 0 --- --- --- 2 3.00 1.500 $3.50 $5.25 4 3.45 0.225 $3.50 $0.79 6 3.89 0.220 $3.50 $0.77 8 4.31 0.210 $3.50 $0.73 10 4.65 0.170 $3.50 $0.60 12 4.94 0.145 $3.50 $0.51 14 5.15 0.105 $3.50 $0.37

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