Question

Suppose Mary goes to an all-you-can-eat Pizza restaurant. where you pay a fixed admission fee at the door and then don't pay anything for any additional slices you eat. True, False or Uncertain. Justify your answer, Have to explanation why. Consider the following statement: "In the real world, we would expect that the cost of admission should have no effect on the amount of pizza consumed by a customer."

Answer 1

In our case, the cost of eating pizza is the fixed admission fee paid at door and every extra slice we consume the marginal cost for us will be $0 as we pay nothing. So with every extra slice your marginal utility will keep diminishing until the maximum point where with any additional unit marginal benefit will be negative.  

The restaurant keeps the price after analysing how much the average person can consume before they are satiated and not likely to eat the food they charge at the entrance so they don't bear loss. (Though, the marginal utility is different for different people but marginal utility will diminish for everyone) overall they set price where they gain.