Question

1.Use the law of diminishing marginal utility to explain why a pizza parlor might price pizzas in the following way: "Buy one pizza for $12, get the second pizza for $6." Why not simply charge $9 per pizza instead? Illustrate.

5.A one-day ticket to Sea World costs $37, but a two-day pass costs $42. What is the average cost per day for a one-day pass? For a two-day pass? What is the marginal cost of a second day at Sea World? Why might Sea World charge such a price for a second day's entrance to the park. Illustrate

Answer 1

1. The law of diminishing marginal utility states that as the quantity increases ,the marginal utility derives from that good decreases. This means the second pizza gives less marginal utility than the first. The pizza parlor is trying to enourage consumers to buy the second pizza by charging a price that reflects its lower marginal utility. If P is set at $9 perpizza, some consumers with low marginal valuations for a second pizza might elect not to purchase a second one. If enough customers elect not to purchase a second pizza at a price of $9 , the pizza parlor might be worse off than when employing the "buy one for $12,get the second pizza for $6 strategy."