Scribd Logo
Upload

Welcome to Scribd!

  • 104 views

    Case Analysis Report UNIT-4

    Uploaded by

    paulhtut21

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd

    Case Analysis Report UNIT-4

    Uploaded by

    paulhtut21
    104 views4 pages

    Copyright

    © © All Rights Reserved

    Available Formats

    DOC, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    104 views4 pages

    Case Analysis Report UNIT-4

    Uploaded by

    paulhtut21

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    You are on page 1of 4

    The Dilemma of Utility Maximization

    Nyan Lin Htut

    Department of Business Management, University of the People

    BUS 1103 - Microeconomics

    Mrs. Kristine Beaird (Instructor)

    Word Count: 818 words

    February 27, 2024

    1
    Title: The Dilemma of Utility Maximization: A Critical Evaluation of Consumption Choices

    Introduction: In this case analysis, we delve into the complexities of utility maximization and
    its impact on consumption choices. The purpose of this analysis is to evaluate the role of
    marginal utility concepts in Emily's decision-making process and explore the implications of her
    choices on overall satisfaction. By examining Emily's preferences, budget constraints, and the
    concept of marginal utility, we aim to understand the factors influencing her consumption
    decisions.

    Scenario Overview: Our protagonist, Emily, is a young professional with diverse preferences
    and a budget of $60 to spend on two goods: books and video games. The prices and total utility
    (TU) and Marginal Utility (MU) for the books and video games are as follows:

    Analysis:

    Analysis Point 1:
    Analysis of Emily's Preferences and Trade-offs
    Emily's preferences for books and video games can be analyzed based on their marginal utilities
    and prices. By comparing the marginal utility per dollar for each good, Emily can prioritize one
    over the other. The trade-offs she faces involve allocating her budget to maximize total utility.
    For instance, if the marginal utility per dollar of video games is higher than that of books, she
    may prioritize video games to maximize satisfaction.
    Marginal Utility and Prices: Emily's decision-making is guided by the marginal utility per
    dollar spent on each good. She will prioritize the good with the higher marginal utility per dollar,
    which indicates the additional satisfaction gained relative to its price. In this case, the marginal
    utility per dollar for books and video games can be calculated by dividing the marginal utility by
    the price of each good.

    Trade-offs: Emily faces trade-offs when deciding on the quantity of each good to consume. As
    she allocates her budget between books and video games, she aims to maximize her total utility.
    This involves comparing the marginal utility of each good and adjusting the quantities consumed
    to achieve equilibrium where the marginal utility per dollar is equal for both goods.

    Analysis Point 2:

    Emily's utility-maximizing approach involves considering the marginal utility (MU) of each
    good in relation to its price. Marginal utility represents the additional satisfaction gained from
    consuming one more unit of a good. To maximize utility, Emily allocates her budget in a way
    that the marginal utility per dollar is equal for both goods.

    2
    Evaluation of Emily's Approach
    By analyzing the provided data, we can determine the combination of books and video games
    that yields the highest level of satisfaction within Emily's budget. This involves comparing the
    marginal utility per dollar for each good and identifying the point at which allocating additional
    funds to one good would result in a lower marginal utility per dollar compared to the other.
    Upon critical evaluation, we will determine if Emily's allocation of $60 between books and video
    games results in the highest level of satisfaction and identify the combination of the two goods
    that achieves this outcome.

    Analysis Point 3:
    Impact of Income Increase
    When Emily's income increases to $100, she can reevaluate her consumption choices. With a
    higher budget, she can allocate more spending to either books or video games. If Emily's
    behavior aligns with the concept of diminishing marginal utility, she may choose to allocate her
    increased income in a way that maximizes her overall satisfaction. This could involve purchasing
    more of the good with a higher marginal utility until the marginal utility per dollar is equal
    across both goods.

    Influence of Price Changes


    Price changes can also influence Emily's consumption decisions. If the price of books or video
    games changes, Emily may adjust her consumption to maximize her utility. For example, if the
    price of books decreases, she may choose to allocate more of her budget to books to maximize
    her overall satisfaction, considering the marginal utility per dollar for each good. The concepts of
    marginal utility and utility maximization play a crucial role in Emily's decision-making process,
    especially when her income increases or when there are changes in the prices of the goods she
    consumes.

    Conclusion: In conclusion, Emily's consumption choices are influenced by the marginal utility
    concepts, prices, and her budget constraint. By critically evaluating these factors, we can
    understand how Emily prioritizes goods, maximizes her utility, and responds to changes in
    income and prices. This analysis provides insights into consumer decision-making and the
    implications of utility maximization on overall satisfaction.

    Recommendations (if applicable): Based on the analysis, it is recommended that Emily


    allocates her budget in a way that equalizes the marginal utility per dollar spent on books and
    video games. This will ensure that she maximizes her overall satisfaction given the budget
    constraint. Additionally, she should consider the diminishing marginal utility of each good when
    making consumption decisions.

    3
    By critically evaluating the role of marginal utility and its implications on Emily's decision-
    making process, she can make more informed consumption choices and maximize her overall
    satisfaction within the given budget.

    References:

    - AP microeconomics with MIT professor Jon Gruber. (2018, January 18). 2.2 income and
    substitution effects [Video]. YouTube.

    - Assignment activity unit-4, BUS-1103: Microeconomics (2024). Business administration.


    UoPeople.

    - Clifford, J. (2018, September 28). Marginal analysis and consumer choice- micro topic
    1.6 [Video]. YouTube.

    - Shapiro, D., MacDonald, D., Greenlaw, S. A., Dodge, E., Gamez, C., Jauregui, Andres.,
    Keenan, D., Moledina, A., Richardson, C., & Sonenshine, R. (2023). Principles of
    microeconomics (3rd ed.). OpenStax. Licensed under CC 2.0

    You might also like