Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 4, Problem 11PAA
To determine
The exhibition of diminishing marginal rate of substitution between store-brand and producer-brand sugar with the help of given preferences. Also, the amount of each type of sugar that will be produced at given price level and the change in quantity purchased when price is increased.
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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…
It is common for supermarkets to carry both generic (store-label) and brand-name (producer-label) varieties of sugar and other products. Many consumers view these products as perfect substitutes, meaning that consumers are always willing to substitute a constant proportion of the store brand for the producer brand. Consider a consumer who is always willing to substitute 4 pounds of a generic store brand for 2 pounds of a brand-name sugar. Do these preferences exhibit a diminishing marginal rate of substitution? Assume that this consumer has $24 of income to spend on sugar, and the price of store-brand sugar is $1 per pound and the price of producer-brand sugar is $3 per pound. How much of each type of sugar will be purchased? How would your answer change if the price of store-brand sugar was $2 per pound and the price of producer-brand sugar was $3 per pound?
A consumer is having a monotonic preference. What can you say about his preference on these bundles
(10,10)
(10,9)
(9,9)
Chapter 4 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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