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Homework_4

Homework_4 - when he could have gone to a buffet and...

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Eric Reed Extra Credit Homework #4 : Due March 20 th by the end of class. Directions : All homework answers MUST be TYPED. No EMAIL SUBMISSIONS. The homework is collected in class. If you can’t be in class then send your homework with a friend or turn it in EARLY outside my office in the box labeled with the time your section begins. (1) (\$1000) You get the following utility (see the table below). You have \$60 to spend for a party. What combination of pizzas should you buy in order to maximize your utility? Number of pizzas purchased Marginal Utility from Canyon Pizza (\$8 large) Marginal Utility from Pizza Hut Pizza (\$12 large) 1 16 24 2 12 12 3 8 8 4 4 6 5 2 4 I should buy 3 \$8 large pizzas from Canyon Pizza and \$12 large pizzas from Pizza Hut to maximize my utility. (2) (\$1000) View the clip from Monty Python’s The Meaning of Life on ANGEL . a. Most fancy restaurants serve small portions so that you can taste many different flavors and textures. Is it surprising to find Mr. Creosote at a fancy restaurant

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Unformatted text preview: when he could have gone to a buffet and enjoyed all he wanted at a flat price? (This will be easier to answer AFTER class on Tuesday, March 18.) No because fancy restaurants try to create high marginal value by making every bite excellent and not diminishing the marginal value through over-eating. b. Mr. Creosote has to vomit in order to eat more. Do you think that he is optimizing his consumption choices? He’s not optimizing his consumption choices. If he had stopped eating once he got full it would have been optimized but he kept eating making it more painful to continue than enjoyable. c. When should someone stop consuming food? (Hint: what is the equal marginal principle we developed on one of the first few slides in chapter 20?) They would stop consuming food because of the Diminishing Marginal Utility which states that the more of any good or service is consumed, its benefits declines....
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