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?

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1. 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.)

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2. Thank you. I will remember the advice in the future:)

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posted by David

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