If Bella eats one piece of pie,she gains a utility of 10.If she continues,a second piece yields a marginal utility of 8,a third will yield a marginal utility of 2,and a fourth piece of pie will yield a marginal utility of 2.We can say:

Question

Quizplus · Accepted Answer

According to the law of diminishing marginal utility, as Bella consumes more and more pie, her marginal utility will decrease. In this case, we see that her marginal utility decreases from 10 to 8 to 2 to 2. Therefore, she should stop consuming pie when her marginal utility is equal to or lower than the price of the pie. Assuming the price of the pie is constant, her marginal utility falls below the price at the third piece of pie. Therefore, Bella's total utility will be maximized if she eats three pieces of pie.

If Bella Eats One Piece of Pie,she Gains a Utility