Question

Joe is going to a buffet that allows him to eat as many chicken wings as he wants at a fixed price. How would you predict the number of chicken wings that Joe will eat using utility theory?

 

Answer 1

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Given Information-

Consumer J can consume as many CW as he wants at a fixed price.

The utility theory is used as follows to predict the number of CW that the consumer would consume.

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Meaning of utility

When a good has the potential to satisfy human wants, then it is said that the good has a utility.

Meaning of total utility

Total utility refers to sum total of all the utilities derived from all the units of consumption.

Meaning of marginal utility

Marginal utility refers to additional utility from an additional consumption unit.

Law of diminishing marginal utility

When the consumer keeps consuming, then the marginal utility starts falling. This means that with each successive unit of a good, the marginal utility derived from each additional unit of consumption falls. This is known as the law of diminishing marginal utility.

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The consumer stops the process of consumption when the point of satiation is reached. This is because the marginal utility is zero at this point. Any further consumption beyond this point will lead to negative marginal utility.

And when marginal utility becomes zero, the total utility is maximum.

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Thus, using the utility theory, it can be predicted that the quantity at which consumer’s marginal utility and total utility of good CW become zero and maximum respectively, would be consumed by the consumer J.