Question

A grocery store is running a “buy-one-get-another-at-one-half-off” promotion on a dozen doughnuts. So the first dozen is $6, and the second would be $3. A person would buy the second dozen if their marginal benefit from the second dozen doughnuts is:

	greater than $3.
	greater than $9.
	less than $3.
	greater than $6.

Answer 1

The law of diminishing marginal utility states that the consumer will get lower and lower utility from every additional or marginal unit of good he consumes. The consumer will continue consuming marginal units till the utility he gets out of every last unit of money he spend has not become equal to zero.

Here he spends an additional $3 and he wont mind if the benefit or utility he gets out of consuming 1 more dozen of doughnuts is greater than this. If the utility is lower, then he will not spend more.

So the correct option is Greater than $3 which automatically makes less than $3 option incorrect.

We need to look at the marginal cost and compare the marginal benefit so the $6 he spent on the 1st dozen makes no sense in this decision. Therefore the other two options are also incorrect.