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Homework answers / question archive / The meal plan at a university lets students eat as much as they like for a flat fee of $600 per semester
The meal plan at a university lets students eat as much as they like for a flat fee of $600 per semester. Students currently consume (on average) 200 pounds of food a semester. The university is considering changing to a meal plan that charges students $600 for a book of meal tickets that can be redeemed for 200 pounds of food during the semester. Under the new plan, if students eat less, they can get a $2 refund for each unused ticket; if they want to eat more, they can purchase additional tickets for $2 each.
A. What is the marginal cost of consuming additional food under the existing plan?
B. What is the marginal benefit (on average) of consuming the 200th pound of food?
C. What is the marginal cost of food under the new plan being considered?
D. Under which plan will food consumption be higher? Explain in terms of MC and MB.
A. What is the marginal cost of consuming additional food under the existing plan?
No additional costs if the student consumed more than 200 pounds of meal.
B. What is the marginal benefit (on average) of consuming the 200th pound of food?
No marginal benefit on the 200th pound of food consumed since the student on average consumed 200 pounds of food. In equilibrium marginal benefit is equal to marginal cost.
C. What is the marginal cost of food under the new plan being considered?
The marginal cost of the new plan is $2 for every pound of food student consumed in excess of the 200 pounds of food allocation.
D. Under which plan will food consumption be higher? Explain in terms of MC and MB.
Assuming the marginal benefit of consuming the 200th pound is zero, consuming less than 200 pounds has positive marginal benefit. Then the marginal benefit equals marginal cost of food at a level of food that is below 200 pounds under the new plan. Therefore, the food consumption will be lower under the new plan and hence, it is higher under the existing plan.
