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ECO401 Assignment Solution

The document presents an assignment solution for ECO401, detailing the calculation of total utility (TU) and marginal utility (MU) for snack consumption based on a given utility function. It concludes that the optimal consumption level is 3 snack packs, as the marginal utility exceeds the price per pack at this quantity. The author expresses concern about potential mistakes in the calculations and hopes to meet expectations.

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akgxacinematics911
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14 views2 pages

ECO401 Assignment Solution

The document presents an assignment solution for ECO401, detailing the calculation of total utility (TU) and marginal utility (MU) for snack consumption based on a given utility function. It concludes that the optimal consumption level is 3 snack packs, as the marginal utility exceeds the price per pack at this quantity. The author expresses concern about potential mistakes in the calculations and hopes to meet expectations.

Uploaded by

akgxacinematics911
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Assignment Solution for ECO401 – Economics

Part (a):
Given the utility function:
TU = 80Q – 8Q²
Price per snack = Rs. 32

Quantity (Q) Total Utility (TU) Marginal Utility Consumption


(MU) Decision

0 0 – –

1 72 72 Increase (MU >


Price)

2 128 56 Increase (MU >


Price)

3 168 40 Increase (MU >


Price)

4 192 24 Decrease (MU <


Price)


Calculations:

TU is calculated by putting Q into the formula:

- For Q=1: TU = 80(1) - 8(1)² = 80 - 8 = 72

- For Q=2: TU = 80(2) - 8(2)² = 160 - 32 = 128

- For Q=3: TU = 240 - 72 = 168

- For Q=4: TU = 320 - 128 = 192

Marginal Utility (MU) = Change in TU:

- MU(1) = TU(1) - TU(0) = 72 - 0 = 72

- MU(2) = 128 - 72 = 56

- MU(3) = 168 - 128 = 40

- MU(4) = 192 - 168 = 24


Part (b):
The optimal level of consumption is 3 snack packs, because at this point the marginal utility
is still higher than the price per pack (Rs. 32). After that, MU drops below the price, so it
wouldn't be rational to consume more.

I tried my best with this one. Honestly, still getting the hang of how these utility functions
work, but hopefully the working and logic are fine. I went through the formula carefully, so
fingers crossed it matches what’s expected. Just wanna make sure I don’t lose marks for a
small mistake.

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