The table below represents a travellers's consumption of bottles of Coca-Cola. Study the table carefully...
The table below represents a travellers's consumption of bottles of Coca-Cola. Study the table carefully and answer the questions that follow.
| No. of Bottles | Total Utility | Marginal Utility |
| 1 | 15 | 15 |
| 2 | 29 | F |
| 3 | 42 | 13 |
| 4 | D | 12 |
| 5 | 65 | G |
| 6 | 75 | H |
| 7 | E | 0 |
(a) Complete the missing figures D, E, F, G and H (5 marks)
(b) Draw the demand curve for the traveler's consumption of Coca-Cola. (The use of a graph sheet is essential) [10 marks]
(c) Explain the law of diminishing marginal utility as the basis for the slope of the traveler's demand curve. [5 marks]
Explanation
(a) D = TU\(_4\) = TU\(_3\) + MU\(_4\) = 42 + 12 = 54
E = TU\(_7\) = TU\(_6\) + MU\(_7\) = 75 + 0 = 75
F = MU\(_2\) = \(\frac{TU_2 - TU_1}{2 - 1}\) = \(\frac{29 - 25}{1}\) = 14
G = MU\(_5\) = \(\frac{TU_5 - TU_4}{5 - 4}\) = \(\frac{65 - 54}{1}\) = 11
H = MU\(_6\) = \(\frac{TU_2 - TU_1}{6 - 5}\) = \(\frac{75 - 65}{6 - 5}\) = 10
OR F = MU\(_2\) = TU\(_2\) - TU\(_1\) = 29 - 15 = 14
(b) To draw the demand curve there must be information on both quantities and prices. In equilibrium MU = P, therefore the marginal utility column represents prices.
(c) According to the law, marginal utility falls when quantity consumed increases
In equilibrium MU = P. Therefore, for MU to fail, price must fall to encourage the consumer to consume more. In other words, it is as price falls that quantity demanded increases as shown in the demand curve