Essay on Problem 1

624 WordsNov 4, 20123 Pages
20-1. The campus pizzeria sells a single pizza for $12. If you order a second pizza, however, the pizzeria charges a price of only $5 for the additional pizza. Explain how an understanding of marginal utility helps to explain the pizzeria’s pricing strategy. 20-1-A. The pricing method that the pizzeria is using shows they understand how marginal utility works, specifically diminishing marginal utility. After hitting the level of satisfaction from the first pizza, a second pizza will not be quite as rewarding. Getting an additional pizza at a price of only $5 dollars will entice a customer to purchase it because of the lower price. Because the significance of the second pizza is less than the first, a costumer would spend less on it.…show more content…
a. Which one-unit increase in consumption from one point to the next along the total utility curve generates the highest marginal utility? From point A to point B there is a total utility increase of 5 units, meaning the marginal utility is 5 units as well. Therefor, point A to point B generates the highest marginal utility. b. Which one-unit increase in consumption from one point to the next along the total utility curve generates zero marginal utility? Point E to point F generates no marginal utility, meaning the marginal utility is zero. c. Which one-unit increase in consumption from one point to the next along the total utility curve generates negative marginal utility? Point F to point G decreases total utility from 11 to 10 units meaning marginal utility is negative. 20-10. Draw a marginal utility curve corresponding to the total utility curve depicted in Problem 20-9. 20-12.Refer to the following table for a different consumer, and assume that each week this consumer buys only hot dogs and tickets to baseball games. The price of a hot dog is $2, and the price of a baseball game is $60. If the consumer’s income is $128 per week, what quantity of each item will he purchase each week at a consumer optimum? 20-12-A. The consumer will purchase 2 baseball game tickets and 4 hot dogs each week at a consumer optimum. Equal marginal utilities per dollar occur at the consumption level of 2 baseball game tickets and 4 hot dogs, with

More about Essay on Problem 1

Open Document