The local pizza restaurant is advertising a special. If you buy one individual sized pizza, you get the next one at 25% off, the third one for 50% off and the fourth one for 75% off. Your marginal ben

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01.07.2022 - 15:08

The local pizza restaurant is advertising a special. If you buy one individual sized pizza, you get the next one at 25% off, the third one for 50% off and the fourth one for 75% off. Your marginal ben

Question:

The local pizza restaurant is advertising a special. If you buy one individual sized pizza, you get the next one at 25% off, the third one for 50% off and the fourth one for 75% off. Your marginal benefit from eating pizza is shown in the table below:

# of Pizzas	Marginal Benefit (MB)	Marginal Cost (MC)
0	0
1	7	6
2	4	4.5
3	2	3
4	1	1.5

(i) If the price of a pizza is $6 how many should you buy?

(ii) Provide an example to justify your choice.

Answers (1)

Corine April 3, 2023 в 19:21

(i) Based on the given information, it is beneficial to buy up to three pizzas as the marginal benefit of the fourth pizza is only 1, which is less than the marginal cost of $1.5. Thus, you should buy three pizzas. (ii) For example, if you buy three pizzas, you will pay full price for the first pizza at $6, 25% off for the second pizza at $4.50, and 50% off for the third pizza at $3. Therefore, you will have spent a total of $13.50 for three pizzas, and the marginal benefit of the third pizza is 2, which is greater than the marginal cost of $3. This shows that buying three pizzas under this special offer is the optimal choice as it provides the maximum benefit at the lowest cost.

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