Question

Red Lobster offers 15.99 all - you - can - eat shrimp. What stops people from eating enough shrimp to make Red Lobster lose money ? (note: you’d have to eat 3 pounds, or 100 shrimp) (clue: use utility theory

Answer 1

The consumption of shrimp gives utility. The utility increases as more and more shrimps are eaten but the marginal utility decreases with consumption of each additional unit of shrimp. Thus at a certain point, the marginal utility becomes zero and utility decreases when additional units of shrimps are consumed. Hence, consumer will eat until marginal utility becomes zero. In other words, consumer will stop consuming shrimps when marginal utility becomes zero.