Question

A consumer experiences the following total utility from consuming a certain good:

If the price per unit is ₹4, at what quantity does the consumer stop purchasing under the equilibrium condition where M U m = 5?
 

• A. 2 units
• B. 3 units
• C. 4 units
• D. 5 units

Hint:

A consumer continues to purchase a good until the marginal utility of the last unit equals the price per unit. In this case, the consumer stops purchasing at 4 units when MU_m = 5.

Answer 1

The Correct Option is C

In microeconomics, a consumer reaches equilibrium when the marginal utility per unit of the good (MUm) is equal to the price of the good. The formula for marginal utility is: \[ MU = \Delta TU / \Delta Q \] where \(TU\) is total utility and \(Q\) is quantity. Let’s calculate the marginal utility for each quantity consumed:
- For the 1st unit: \(MU = 45 - 25 = 20\)
- For the 2nd unit: \(MU = 60 - 45 = 15\)
- For the 3rd unit: \(MU = 70 - 60 = 10\)
- For the 4th unit: \(MU = 75 - 70 = 5\)
The price per unit is ₹4, and the equilibrium condition is \(MU_m = 5\). From the calculations, the marginal utility for the 4th unit is 5, which matches the equilibrium condition. Thus, the consumer stops purchasing at 4 units.