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Chapter 20: Q. 1 (page 452)

The campus pizzeria sells a single pizza for \(12. If you order a second pizza, however, the pizzeria charges a price of only \)5for the additional pizza. Explain how an understanding of marginal utility helps to explain the pirzeria's pricing strategy.

Short Answer

Expert verified

Therefore,considering the marginal utility of the second pizza, the price of the campus pizzeria is relatively lower than the first pizza.

Step by step solution

01

Step 1- Introduction

Campus Pizzeria takes into accountthe principle of reducing marginal utility in determining pricing policies. According to the law of reducing marginal utility, additional consumption is relatively unsatisfactory.

02

Step 2- Explanation

If the consumer requests a second pizza, his marginal utility is relatively less than the marginal utility of the first pizza. As a result, consumers will be willing to pay a relatively small amount for the second pizza.

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