1. Consumer Choice and Utility Maximization

2. The Law of Diminishing “ADDITIONAL” “SATISFACTION”

3. Calculate Marginal Utility
# of Slices of Pizza
Total Utility
(in utils)
Marginal Utility/Benefit 1 8 2 14 3 19 4 23 5 25 6 26 7 24
How many pizza slices would you buy if the price per slice was $2?

4. Calculate Marginal Utility
# of Slices of Pizza
Total Utility
(in dollars)
Marginal Utility/Benefit 1 8 2 14 6 3 19 5 4 23 25 26 7 24 -2
Marginal Cost $2
How many pizzas would you buy if the price per slice was $2?

5. Calculate Marginal Utility
# of Slices of Pizza
Total Utility
(in dollars)
Marginal Utility/Benefit 1 8 2 14 6 3 19 5 4 23 25 26 7 24 -2
Marginal Cost 2
You will continue to consume until Marginal Benefit = Marginal Cost
How many pizzas would you buy if the price per slice was $2?

6. Marginal Utility Per Dollar
CONSUMER BEHAVIOR
You plan to take a vacation and want to maximize your utility. Based on the info below, which should you choose?
Destination
Marginal Utility
(In Utils)
Price
Tahiti
3000
$3,000
Chicago
1000
$500
Marginal Utility Per Dollar
1 Util
2 Utils

7. Marginal Utility Per Dollar
CONSUMER BEHAVIOR
You plan to take a vacation and want to maximize your utility. Based on the info below, which should you choose?
Destination
Marginal Utility
(In Utils)
Price
Tahiti
3000
$3,000
Chicago
1000
$500
Marginal Utility Per Dollar
1 Util
2 Utils
Calculating Marginal Utility Per Dollar allows you to compare products with different prices.

8. Utility Maximization $10 $5
# Times
Going
Marginal Utility
(Movies)
MU/P
(Price =$10)
Marginal
Utility
(Go Carts)
(Price =$5)
1st 30 10
2nd 20 5
3rd 2
4th 1
If you only have $25, what combination of movies and go carts maximizes your utility?

9. Utility Maximization $10 $5
# Times
Going
Marginal Utility
(Movies)
MU/P
(Price =$10)
Marginal
Utility
(Go Carts)
(Price =$5)
1st 30 3 10 $2
2nd 20 5 $1
3rd 2
$.40
4th
$.50 1
$.20
If you only have $25, what combination of movies and go carts maximizes your utility?

10. Utility Maximization $10 $5
# Times
Going
Marginal Utility
(Movies)
MU/P
(Price =$10)
Marginal
Utility
(Go Carts)
(Price =$5)
1st 30 3 10 2
2nd 20 $2 5 $1
3rd
$.40
4th
$.50 1
$.20
If you only have $25, what combination of movies and go carts maximizes your utility?

11. Utility Maximization $10 $5
# Times
Going
Marginal Utility
(Movies)
MU/P
(Price =$10)
Marginal
Utility
(Go Carts)
(Price =$5)
1st 30 3 10 2
2nd 20 5 1
3rd
.40
4th
.50
.20
If you only have $25, what combination of movies and go carts maximizes your utility?

12. Utility Maximization $30 $10
# Times
Going
Marginal Utility
(Golf)
MU/P
(Price =$30)
Marginal
Utility
(Bowling)
(Price =$10)
1st
120 40
2nd 90 25
3rd 75 20
4th 45 5
If you have $75, what combination of golf and bowling maximizes your utility?

13. Utility Maximization $30 $10
# Times
Going
Marginal Utility
(Golf)
MU/P
(Price =$30)
Marginal
Utility
(Bowling)
(Price =$10)
1st
120 4 40
2nd 90 3 25
2.5
3rd 75 20 2
4th 45
1.5 5 .5
If you have $75, what combination of golf and bowling maximizes your utility?

14. Utility Maximization $30 $10
# Times
Going
Marginal Utility
(Golf)
MU/P
(Price =$30)
Marginal
Utility
(Bowling)
(Price =$10)
1st
120 4 40
2nd 90 3 25
2.5
3rd 75 20 2
4th 45
1.5 5 .5
If you have $150, what combination of golf and bowling maximizes your utility?

15. Utility Maximizing Rule
The consumer’s money should be spent so that the marginal utility per dollar of each goods equal each other.
MUx = MUy
Px Py
3 apples and 2 oranges
Assume apples cost $1 each and oranges cost $2 each. If the consumer has $7, identify the combination that maximizes utility.