Microeconomics help please (urgent)
posted by David on .
You go to an auction and set a maximum price of $100 you are willing to bid on an item. However, you are fortunate and purchase it for $50.
1) Does the lower price alter the marginal utility you originally placed on the item?
2) Is your potential total utility increased because of the lower price?
1) Under the most common utility functions, No. Price paid is independent of the marginal utility received.
2) Yes, Instead of getting the item for $100, you get the item plus have $50 to spend on something else.
(Note: in future posts, I suggest you let us know what you think the answer is. We would much rather critique your thinking than to just give you the answer right out.)
Thank you. I will remember the advice in the future:)