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ECON MICRO

5th Edition
William A. McEachern
Publisher: Cengage Learning
ISBN: 9781337000536
BuyFind

ECON MICRO

5th Edition
William A. McEachern
Publisher: Cengage Learning
ISBN: 9781337000536

Solutions

Chapter
Section
Chapter 6, Problem 1.1P
Textbook Problem

(Law of Diminishing Marginal Utility) Some restaurants offer “all you can eat” meals. How is this practice related to diminishing marginal utility? What restrictions must the restaurant impose on the customer to make a profit?

Expert Solution
To determine

The relationship between the diminishing marginal utility and the offer of the restaurants of “all you can eat” and the restrictions imposed by the restaurants in order to earn profits.

Concept Introduction:

Law of Diminishing Marginal Utility: The law states that as we consume more and more of a unit, the successive utility from consuming additional units goes on falling. In other words, the marginal utility goes on falling as we consume more of a good.

Explanation of Solution

The restaurant owners know this concept and know that a consumer will consume till that unit of good where his marginal utility is positive. They know that as consumer consumes more, the marginal utility starts falling. So, the customers would not want to go to dissatisfaction and this would make them stop soon.

Some restrictions that restaurant can impose on customers to make a profit are as follows:

(a) The customer cannot share his plates with other customers.

(b) Time of consumption must be limited.

(c) No takeaways are allowed in the bags.

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