Question

Wk 9 Mini Assignment MU Story

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Mr Rabbit, Mr Bear and Mr Fox go to town. A new bakery has just opened, and in an attempt to attract awareness, it is offering free unlimited samples of its chocolate chip cookies. However, the free cookies can only be consumed in-store (you cannot take them home).

Mr. Rabbit ate 10 cookies and then stopped

Mr. Bear ate 25 cookies before he stopped, then bought a milkshake.

Mr. Fox had 30 cookies and then stopped.

The owner of the bakery, Mr. Turtle, said “I am glad you like the cookies!” Here’s is a funny story about my muffins...last week, I dropped the price on muffins 20% but I only sold 20% more! In the end, the total muffin sales were the same as if they were normally priced!!

Briefly explain your answer to the questions below:

1. Who got to zero marginal utility for the cookies first?
2. Mr Bear still was not full after 25 cookies, since he paid for a milkshake. Why would he pay for a milkshake when he could keep eating cookies for free?
3. What kind of price elasticity is Mr Turtle seeing on his muffins?  

Answer 1

Question 1

Mr. Rabbit ate 10 cookies.

Mr. Bear ate 25 cookies.

Mr. Fox ate 30 cookies.

Mr. Rabbit has eaten the least number of cookies.

A consumer stops the consumption of a good when he or she get zero utility from additional unit of good consumed.

Mr. Rabbit has stped at the earliest of the three.

So,

Mr. Rabbit got to zero marginal utility for the cookies first.

Question 2

It has been stated that Mr. Bear has stopped after eating 25 cookies. However, he has consumed milk shake after that. This means that he was not full even after eating 25 cookies.

This indicates that the additional utility that Mr. Bear expected to receive from one more cookie is lower than the utility expected to receive from a glass of milkshake.

This lower marginal utility from one more cookie in comparison to a glass of milkshake has prompted Mr. Bear to have milkshake even though he has to pay for milkshake whereas cookies are free.

Question 3

It has been stated that 20% decrease in price of muffin has resulted in a 20% increase in quantity demanded of muffins.

When percentage change in quantity demanded of a good is equal to the percentage change in price of a good the demand for such good is said to be unit elastic.

So,

The price elasticity is equal to 1 for Mr Turtle's muffins or muffins has unit elastic demand.