Federal Urdu University of Arts,

Science and Technology

Assignment No. 2

MBA (2nd Semester)

Managerial Economics

Course Supervisor: Adnan Hussain

Due Date: 21/02/2011

Q no.1

The following table shows the marginal utility, measured in utils of satisfaction
which Mr. Johnson would get by purchasing various amount of product X, Y and Z.
The prices of X, Y and Z are $3, $5 and $1 respectively. Mr. Johnson money income
of $40 to spend in the current period.

Quantit Total Margin Quanta Total Margin Quanta Total Margin

y of X Utility al ty of Y Utility al ty of Z Utility al
goods Of X Utility goods Of Y utility goods of Z Utility
Of X of Y of Z
0 0 0 0 0 0
1 54 1 75 1 19
2 99 2 135 2 26
3 129 3 175 3 29
4 138 4 200 4 31
5 141 5 215 5 32
6 138 6 220 6 32

How many units of X, Y and Z must Mr. Johnson purchase to maximize total utility
and also show the maximize condition of total utility.

Q # 2. What is the difference between cardinal approach and ordinal approach of

utility?

Q # 3. Define Consumer Surplus with help of example?

Q # 4. Prove the statement with help of ordinal approach. “Consumer is maximizing

his total utility where MRS (Marginal Rate of Substitution) is equal to MRT (Marginal
Rate of Transformation)?
Q # 5. Differentiate between the Marshallan demand curve and Hackshian demand
curve?

Q No. 2

Utility means satisfaction which a consumer derive from commodities and services
by purchasing different units of money. cardinal utility means satisfaction that can
be measured in numbers such as 1,2,and 3. While ordinal utility refers to
satisfaction cannot be measureable in numbers.

The concept of Cardinal Utility was used by Marshal to define Consumer's

Equilibrium. Cardinal Utility means consumer could measure the satisfaction derived
by the consumption of any goods or services in terms of number and unit of that
measurement is Utils or the Money.
Where as Ordinal Utility means giving the rank to the utility derived by the
consumption of goods and services. This Concept was given by J.R. Hicks. This is
more realstic and better than cardinal utility. This is totally based on Introspection.