CA Foundation P4 · Chapter 2 · Question 11 of 15
The marginal utilities a consumer derives from successive units of a commodity are 50, 40, 30, 20 and 10 utils. One util equals Re 1 and the market price is Rs. 20 per unit. If the consumer buys up to the point where marginal utility equals price, the consumer surplus is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Rs. 60
Explanation
The consumer buys units while MU is at least Rs. 20, i.e., 4 units (MU of the 4th unit = 20). Total utility of 4 units = 50 + 40 + 30 + 20 = Rs. 140. Amount paid = 4 x 20 = Rs. 80. Consumer surplus = 140 - 80 = Rs. 60. Rs. 50 would result from buying all 5 units (150 - 100).
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