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 units of a good are consumed, the additional satisfaction (marginal utility) from consuming each additional unit decreases. Therefore, Betty would get less marginal utility from her first doughnut than anything else she buys for 50 cents. This is because at a higher price, the marginal utility from each doughnut is decreasing faster than at lower prices. This is reflected in her demand schedule, where the quantity demanded decreases as the price increases. It does not necessarily mean that doughnuts are an inferior good, and there is no information to suggest that she is not a rational consumer.

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