The utility schedule of a consumer for a brand of ice cream is shown in the table below. Use the information to answer the questions that follow:
| Units Consumed (Q) | Total Utility (TU) | Marginal Utility (MU) |
| 0 | 0 | – |
| 1 | 10 | 10 |
| 2 | 19 | R |
| 3 | P | 6 |
| 4 | 30 | 5 |
| 5 | 31 | S |
| 6 | Q | 0 |
| 7 | 29 | -2 |
(a) Calculate the values of P,Q,and S. (8 marks).
(b) Given that the jprice of ice cream is $ 1.00 per unit, at what level of consumption is the consumer in equilibrium? Explain your answer. (3 marks).
(c) Use a graph sheet, draw the marginal utility curve.(3 marks).
(d) State the law of diminishing marginal utility. (3 marks).
Explanation
(a) P = TU\(_3\) = TU\(_2\) + MU\(_3\) = 19 + 6 = 25
Q = TU\(_6\) = TU\(_5\) + TU\(_6\) = 31 + 0 = 31
R = MU2 = \(\frac{TU_2 - TU_1}{2 - 1}\) = \(\frac{19 - 10}{1}\) = 9
S = MU5 = \(\frac{TU_5 - TU_4}{5 - 4}\) = \(\frac{31 - 30}{1}\) = 1
(b) The consumer attains equilibrium at the 5th level of consumption.
For one commodity, the consumer attains equilibrium when MU = Price.
At the 5th level, MU = M1 and the price is given as $1.00
(c)
(d) The law of diminishing marginal utility states that s a consumer consumes more units of a commodity, the satisfaction derived from each additional unit of the commodity diminishes.