Question

Which statement would be true about a person who goes to an all-you-can-eat restaurant? (LO2) a) She will never eat more food than she would at a regular restaurant. b) She will eat until closing time. c) She will eat until the marginal utility of the last portion of food is zero. d) She will keep eating while her marginal utility is rising.

Short answer

The correct answer is statement c: "She will eat until the marginal utility of the last portion of food is zero." This statement represents the behavior of a person who goes to an all-you-can-eat restaurant concerning marginal utility, as they will continue consuming food until the additional satisfaction gained from eating the next portion becomes zero or even negative.

Step-by-step solution

Analyzing Statement a

Statement a says: "She will never eat more food than she would at a regular restaurant." This statement is not necessarily true since the person can eat more food in an all-you-can-eat restaurant if she desires to do so, depending on her appetite and preferences.

Analyzing Statement b

Statement b says: "She will eat until closing time." This statement is also not necessarily true, as it depends on the individual's preferences and appetite. A person may feel satisfied and stop eating before the restaurant closes.

Analyzing Statement c

Statement c says: "She will eat until the marginal utility of the last portion of food is zero." This statement is true. According to the concept of marginal utility, a person will continue consuming food until the additional satisfaction gained from eating the next portion becomes zero or even negative (due to overeating and discomfort). This is when a person will stop eating because they are not gaining any more satisfaction from consuming additional food.

Analyzing Statement d

Statement d says: "She will keep eating while her marginal utility is rising." This statement is not true because people typically stop eating when the marginal utility starts to decrease, not when it's still rising. A person's satisfaction from consuming an additional portion of food will eventually decrease, and they will stop eating when it becomes zero or negative. In conclusion: The correct answer is statement c (She will eat until the marginal utility of the last portion of food is zero.).

Key concepts

Microeconomics

Microeconomics plays a critical role in understanding consumer decisions such as the scenario presented with the all-you-can-eat restaurant. It's a branch of economics that examines how individuals and firms make choices regarding the allocation of limited resources. Microeconomics hinges on the idea that consumers and producers make rational choices to maximize their satisfaction and profits, respectively.

In the context of dining out, microeconomics would analyze how a person decides how much to eat based on factors like the cost of the buffet, their income, their level of hunger, and the satisfaction or utility they get from each additional portion of food. The all-you-can-eat business model offers a unique opportunity to apply microeconomic theories to understand how a fixed price for unlimited food can influence eating habits and utility.

Consumer Behavior

Consumer behavior looks closely at how individuals make purchasing decisions and how they use and dispose of the goods and services they acquire. It combines elements from psychology, sociology, socio-psychology, anthropology, and economics.

In our restaurant scenario, factors influencing consumer behavior might include personal preferences, hunger levels, social influences, and prior experiences. For instance, the value a person places on variety and the ability to try different foods without incurring additional costs might influence their decision to visit an all-you-can-eat buffet. By observing and understanding consumer behavior, businesses can tailor their offerings to better satisfy their customers' desires and expectations.

Utility Maximization

Utility maximization is the process by which consumers seek to get the greatest level of satisfaction possible from their consumption choices, given their income and the prices of goods and services. Utility is a measure of the satisfaction or happiness that someone gets from consuming goods and services.

In the given exercise, utility maximization would explain why a person at an all-you-can-eat buffet stops eating when the marginal utility of the last portion of food consumed is zero. The diner is trying to get the most satisfaction from their eating experience without overeating to the point of discomfort, which would decrease their total utility. This concept helps us understand that there is a limit to consumption, even when the cost is fixed, and that rational consumers will stop consuming once that limit is reached.

Marginal Analysis

Marginal analysis revolves around the examination of the additional benefits of an activity compared to the additional costs incurred by that same activity. The concept of marginal utility, which plays a vital role in this analysis, refers to the additional satisfaction a consumer gains from consuming one more unit of a good or service.

Applying marginal analysis to the all-you-can-eat buffet reveals why it's rational for individuals to cease eating once the marginal utility reaches zero – at that point, consuming more adds no additional satisfaction and could even lead to negative utility. The use of marginal analysis allows consumers to make informed decisions that optimize their satisfaction given their personal limitations, such as appetite and the desire to avoid discomfort from overeating.