Calculate Taco Utility: Total & Marginal Utility Explained

Subject : Business

Question: During her lunch break, Michelle heads to a nearby food truck selling tacos. Each taco only costs $2 each, but she’s so hungry, she’s willing to pay $5 each. Even though the tacos are only worth $2 each, she places a utility worth of $5. During her stay at the truck, she wants to eat two tacos. Knowing she’ll be almost full after the first taco, she’s only willing to pay $3 for the second taco, placing a lower utility upon it.

Expert Verified Solution:

Let’s calculate Michelle’s total utility from her taco purchases:

1. Total Utility Calculation

For the First Taco:

Willingness to Pay (Utility): $5

Actual Cost: $2

Utility for the First Taco: $5 – $2 = $3

For the Second Taco:

Willingness to Pay (Utility): $3

Actual Cost: $2

Utility for the Second Taco: $3 – $2 = $1

Total Utility: 3(fromthefirsttaco)+1(fromthesecondtaco) = $4

2. Marginal Utility Calculation

To find the marginal utility between the two tacos, we look at the change in utility from consuming the second taco compared to the first taco.

Marginal Utility of the Second Taco: Utility of Second Taco – Utility of First Taco

= $1 – $3 = -$2

Summary

Total Utility for the two tacos: $4

Marginal Utility between the first and second taco: -$2

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