Question

1. Suppose the new campus dining facility offers weekend meals for the students. The following table shows your willingness to pay for each additional meal at dining facility during a typical weekend.

Meal	Willingness to pay for this meal
1st	$12
2nd	$8
3rd	$6
4th	$4
5th	$2
6th	$0

a. Suppose the price of each meal is $10. How many meals will you eat on a typical weekend? Explain.

b. In addition to the $10 per meal pricing, there is an “all-you-care-to-eat” deal. What is the most that you would be willing to pay for a meal plan that allows you to eat unlimited meals during a weekend at no cost for each meal? Explain.

c. How would your answer to part b change if the price of each meal sold individually is $5 instead of $10? Explain.

Answer 1

Suppose the new campus dining facility offers weekend meals for the students. The following table shows your willingness to pay for each additional meal at dining facility during a typical weekend.

Meal	Willingness to pay for this meal
1st	$12
2nd	$8
3rd	$6
4th	$4
5th	$2
6th	$0

a. Suppose the price of each meal is $10. How many meals will you eat on a typical weekend? Explain.

If the price of each meal is $10, then you will eat only 1^st meal. Here the price paid is $10 and the willingness to pay is $12, so there will be a consumer surplus of $2. After this the willingness to pay is less than the price, so the no consumer will purchase as there is no surplus or benefit.

b. In addition to the $10 per meal pricing, there is an “all-you-care-to-eat” deal. What is the most that you would be willing to pay for a meal plan that allows you to eat unlimited meals during a weekend at no cost for each meal? Explain.

If unlimited meals are provided then the consumer will purchase up to the 6^th meal where the willingness is zero. The total benefit the consumer will get $32 (addition of all individual willingness). If you now consider the $10 meal condition the benefit is $2 ($12-$10). This benefit the consumer will also get under “all-you-care-to-eat” deal.

So the maximum you will be willing to pay under “all-you-care-to-eat” deal will be $32 - $02 = $30.

c. How would your answer to part b change if the price of each meal sold individually is $5 instead of $10? Explain.

When the price is decreased to $5 instead of $10, the number of meals will increase to 3^rd. It will increase till the willingness to pay is more than the price you paid.

Now the total benefit you will get is $7 ($12 – 5) + $3 ($8 – $5) + $1 ($6 – $5) = $11.

So the maximum you will be willing to pay under “all-you-care-to-eat” deal will be $32 - $11 = $21.