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AP Microeconomics 1.6 Marginal Analysis and Consumer Choice Questions

Practise using utility schedules, budget constraints and marginal comparisons to explain consumer choices, select optimal quantities and separate current decisions from fixed costs.

Syllabus
Effective Fall 2022
Course
AP Microeconomics

Exam points

  • interpret total- and marginal-utility schedules and explain diminishing marginal utility
  • compare marginal utility per dollar across goods to find the best bundle within a fixed budget
  • predict how price or income changes alter a consumer's feasible utility-maximising combination
  • compare marginal benefit and marginal cost to choose whether an activity should expand or contract
  • explain why fixed-cost changes do not change an optimal quantity when marginal conditions are unchanged

Covered syllabus points

CBA-2.A—a. Define the key assumptions of consumer choice theory. b. Explain (using a table or graph as appropriate) how a rational…CBA-2.B—a. Define marginal analysis and related terms. b. Explain a decision using marginal analysis (using a table or a graph when…

Question 1

[Maximum number: 4]

The table provided shows the marginal utility for Lucy when she consumes Good X and Good Y.

Table for Question 1 — AP Microeconomics

Question (a)

(a)

If Good X and Good Y are free, how many units of each good will maximize Lucy's total utility?

[ 1 ]

Question (b)

(b)

Calculate Lucy's total utility if she consumes 2 units of Good X and 2 units of Good Y. Show your work.

[ 1 ]

Question (c)

(c)

Suppose instead that the price of each unit of Good X is $2 and the price of each unit of Good Y is $4. Lucy has a budget of $20 to spend on the two goods.

[ 2 ]

Question (i)

(i)

If Lucy purchases 2 units of Good X, what is the maximum quantity of Good Y Lucy can purchase?

[ 1 ]

Question (ii)

(ii)

What is Lucy's optimal combination of Good X and Good Y? Explain your answer using marginal analysis and numbers.

[ 1 ]

Question 2

[Maximum number: 1]

Deskward is a typical profit-maximizing firm that produces and sells wooden desks in a constant-cost, perfectly competitive market that is in long-run equilibrium.

If the monthly rent, a fixed cost, on Deskward's factory building increases, what will happen to the firm's profit-maximizing quantity in the short run? Explain.

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