Fran runs a doughnut shop in a tiny 3-person town.Fran's rational consumers have the following demand schedules: $$\begin{array} { | l | l | l | l | }
\hline \text { Price } & \text { Art } & \text { Betty } & \text { Cal } \
\hline 10 \text { cents } & 10 & 4 & 6 \
\hline 25 \text { cents } & 9 & 2 & 5 \
\hline 35 \text { cents } & 7 & 1 & 5 \
\hline 50 \text { cents } & 5 & 0 & 4 \
\hline
\end{array}$$
From the data you can assume that Betty
A) thinks that doughnuts are an inferior good.
B) would get more marginal utility from her first doughnut than anything else that she buys for 50 cents.
C) would get less marginal utility from her first doughnut than anything else that she buys for 50 cents.
D) is not a rational consumer.

Question

Fran runs a doughnut shop in a tiny 3-person town.Fran's rational consumers have the following demand schedules: $$\begin{array} { | l | l | l | l | } 
\hline \text { Price } & \text { Art } & \text { Betty } & \text { Cal } \
\hline 10 \text { cents } & 10 & 4 & 6 \
\hline 25 \text { cents } & 9 & 2 & 5 \
\hline 35 \text { cents } & 7 & 1 & 5 \
\hline 50 \text { cents } & 5 & 0 & 4 \
\hline
\end{array}$$
From the data you can assume that Betty
A) thinks that doughnuts are an inferior good.
B) would get more marginal utility from her first doughnut than anything else that she buys for 50 cents.
C) would get less marginal utility from her first doughnut than anything else that she buys for 50 cents.
D) is not a rational consumer.

Quizplus · Accepted Answer

According to the law of diminishing marginal utility, as more of a good is consumed, the marginal utility derived from each additional unit decreases. Since Betty's demand for doughnuts decreases as the price increases, it can be inferred that she is experiencing diminishing marginal utility for each additional doughnut at those higher prices. Therefore, Betty would get less marginal utility from her first doughnut than anything else she buys for 50 cents.

Fran Runs a Doughnut Shop in a Tiny 3-Person Town