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Question
Find MPC ( Marginal propensity to Consume ) and APC ( Average Propensity to Consume ) if the expenditure Ec of a person with income I is given as Ec = ( 0.0003 ) I2 + ( 0.075 ) I when I = 1000.
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Solution
Ec = ( 0.0003 ) I2 + ( 0.075 ) I
MPC = `(dE_c)/(dI)`
∴ MPC = 2 ( 0.0003 )I + 0.075
When I = 1000
∴ MPC = 2( 0.0003 ) 1000 + 0.075
∴ MPC = 0.675
∴ APC = `E_c/I`
∴ APC = 0.0003I + 0.075
When I = 1000
∴ APC = 0.0003( 1000 ) + 0.075
∴ APC = 0.375.
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