Chapter 07 Utility Maximization Answer Key
Multiple Choice Questions
1. The utility of a good or service
A. is synonymous with usefulness.
2. Marginal utility can be
A. positive, but not negative.
B. positive or negative, but not zero.
3. Mary says, “You would have to pay me $50 to attend that pro wrestling event.” For Mary, the
marginal utility of the event is
A. zero.
B. positive, but declines rapidly.
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Blooms: Remember
Dif f i cul t y: 0 1 E a s y
Gra d abl e : au t oma t i c
Learning Objective: 07–01 Define and explain the relationship between total utility,
marginal utility, and the law of diminishing marginal utility.
Test Bank: I
Topic: Law of Diminishing Marginal Utility
4. The ability of a good or service to satisfy wants is called
A. utility maximization.
B. opportunity cost.
5. Which of the following statements about utility is true?
A. It is the same as usefulness.
B. Total utility diminishes as soon as additional units of a good are consumed.
7-3
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Topic: Law of Diminishing Marginal Utility
6.
Units Consumed
Total Utility
Marginal Utility
0
0
–
1
W
20
2
35
X
3
Y
10
4
40
Z
Refer to the data. The value for Y is
A. 25.
7.
Units Consumed
Total Utility
Marginal Utility
0
0
–
1
W
20
2
35
X
3
Y
10
4
40
Z
Refer to the data. The value for X is
C. 55.
D. 10.
8.
Units Consumed
Total Utility
Marginal Utility
0
0
–
1
W
20
2
35
X
3
Y
10
4
40
Z
Refer to the data. The value for W is
A. 15.
9.
Units Consumed
Total Utility
Marginal Utility
0
0
–
1
W
20
2
35
X
3
Y
10
4
40
Z
Refer to the data. The value for Z is
D. zero.
10.
Units Consumed
Total Utility
Marginal Utility
0
0
–
1
W
20
2
35
X
3
Y
10
4
40
Z
The data illustrate the
A. law of comparative advantage.
7-6
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written consent of McGraw-Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Remember
Dif f i cul t y: 0 1 E a s y
Gra d abl e : au t oma t i c
Learning Objective: 07–01 Define and explain the relationship between total utility,
marginal utility, and the law of diminishing marginal utility.
Test Bank: I
Topic: Law of Diminishing Marginal Utility
Type: Table
11.
Units Consumed
Total Utility
Marginal Utility
0
0
–
1
W
20
2
35
X
3
Y
10
4
40
Z
Refer to data. Marginal utility becomes negative beginning with the
A. first unit.
B. second unit.
12. A product has utility if it
A. takes more and more resources to produce successive units of it.
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written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Remember
Dif f i cul t y: 0 1 E a s y
Gra d abl e : au t oma t i c
Learning Objective: 07–01 Define and explain the relationship between total utility,
marginal utility, and the law of diminishing marginal utility.
Test Bank: I
Topic: Law of Diminishing Marginal Utility
13. The law of diminishing marginal utility states that
A. total utility is maximized when consumers obtain the same amount of utility per unit of each
product consumed.
14. The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12
units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the
third Pepsi is
A. 26 units of utility.
B. 6 units of utility.
7-8
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written consent of McGraw-Hill Education.
Gra d abl e : au t oma t i c
Learning Objective: 07–01 Define and explain the relationship between total utility,
marginal utility, and the law of diminishing marginal utility.
Test Bank: I
Topic: Law of Diminishing Marginal Utility
15. If the price of product X rises, then the resulting decline in the amount purchased will
A. necessarily increase the consumer’s total utility from his total purchases.
16. Marginal utility is the
A. sensitivity of consumer purchases of a good to changes in the price of that good.
17. Utility refers to the
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A. satisfaction that a consumer derives from a good or service.
B. rate of decline in a product demand curve.
C. relative scarcity of a product.
D. usefulness of a product.
18. Total utility may be determined by
A. multiplying the marginal utility of the last unit consumed by the number of units consumed.
19. Refer to the diagram. The marginal utility of the third unit of X is
A. 5.
20.
Refer to the diagram. The total utility yielded by 4 units of X is
A. 4.
21.
Refer to the diagram. Total utility is at a maximum at units of X.
A. 2
22.
Refer to the diagram. Total utility
A. increases so long as additional units of Y are purchased.
B. becomes negative at 4 units.
23.
Refer to the diagram. Marginal utility
A. increases at an increasing rate.
24. If total utility is increasing, marginal utility
D. will be increasing at an increasing rate.
25. Where total utility is at a maximum, marginal utility is
A. negative.
B. positive and increasing.
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written consent of McGraw-Hill Education.
Learning Objective: 07–01 Define and explain the relationship between total utility,
marginal utility, and the law of diminishing marginal utility.
Test Bank: I
Topic: Law of Diminishing Marginal Utility
26. Which of the following is correct?
A. There is no firm mathematical relationship between marginal utility and total utility.
B. Total utility is equal to the change in marginal utility from consuming an additional unit of a
27. The law of diminishing marginal utility explains why
A. supply curves slope upward.
28. While eating at Alex’s “Pizza by the Slice” restaurant, Kara experiences diminishing
marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed and
would only receive 5 units of satisfaction from consuming a second slice, at the same price.
Based on this information, we can conclude that
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A. Alex may have to lower the price to convince Kara to buy a second slice.
B. Kara will not eat a second slice, even if it is given to her at no charge.
C. Kara will definitely want to buy a second slice of pizza.
D. even if Kara buys a second slice, she will not buy a third slice.
29. The theory of consumer behavior assumes that
D. marginal utility is constant.
30. To maximize utility, a consumer should allocate money income so that the
A. elasticity of demand on all products purchased is the same.
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Blooms: Understand
D iffic u l t y: 0 2 M e d ium
G rada b l e : auto m a t i c
Learning Objective: 07–02 Describe how rational consumers maximize utility by
comparing the marginal utility-to-price ratios of all the products they could possibly
purchase.
Test Bank: I
Topic: Theory of Consumer Behavior
31. Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending
all her money income should buy
A. less of X only if its price rises.
B. more of Y only if its price rises.
32. Mrs. Arnold is spending all her money income by buying bottles of soda and bags of
pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal
utility of the last bag is 30 utils. The prices of soda and pretzels are $0.60 per bottle and $0.40
per bag, respectively. It can be concluded that
A. the two commodities are substitute goods.
B. Mrs. Arnold should spend more on pretzels and less on soda.
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comparing the marginal utility-to-price ratios of all the products they could possibly
purchase.
Test Bank: I
Topic: Theory of Consumer Behavior
33. Answer the question on the basis of the following two schedules, which show the amounts
of additional satisfaction (marginal utility) that a consumer would get from successive quantities
of products J and K.
Units of J
MUj
Units of
K
MUk
1
56
1
32
2
48
2
28
3
32
3
24
4
24
4
20
5
20
5
12
6
16
6
10
7
12
7
8
If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively,
the consumer will maximize her utility by purchasing
A. 2 units of J and 7 units of K.
34. Answer the question on the basis of the following two schedules, which show the amounts
of additional satisfaction (marginal utility) that a consumer would get from successive quantities
of products J and K.
Units of
J
MUj
Units of
K
MUk
1
56
1
32
2
48
2
28
3
32
3
24
4
24
4
20
5
20
5
12
6
16
6
10
7
12
7
8
What level of total utility is realized from the equilibrium combination of J and K, if the
consumer has a money income of $52 and the prices of J and K are $8 and $4, respectively?
A. 156 utils
35. Answer the question on the basis of the following two schedules, which show the amounts
of additional satisfaction (marginal utility) that a consumer would get from successive quantities
of products J and K.
Units of
J
MUj
Units of
K
MUk
1
56
1
32
2
48
2
28
3
32
3
24