Module 6 Key

1- Explain total utility, marginal utility and diminishing marginal utility.

2- Kim has $20 per week in her entertainment budget. She splits her time between going to the movies and yoga classes. Each movie costs $8 while each yoga class costs $4. The total utility from each of these activities is set out in the table below.

3- Briefly describe how the utility-maximizing choice on a consumption budget constraint can be found.

4-Calculate the utility maximizing combination of X and Y given an income of $14, Px =$4 and Py = $2.

5- What is the total utility of this combination?

6- Assume the price of good X falls to $2 and all other things remain the same. What quantities of X and Y will you now purchase?