Arons marginal values hamburger and French fries per week ar

Aron\'s marginal values hamburger and French fries, per week, are as follows: Joe\'s Eats charges Dollar 4 for hamburgers Dollar 1 for fries. Jake\'s Eats charges Dollar 2 and Dollar 3 respectively for the same quality burgers and fries. How many burgers and fries does he eat per week at joe\'s? burgers and fries. How many burgers and fries does he eat per week at Jake\'s? burgers and fries. The consumer surplus from eating at Joe\'s is Dollar and Jake\'s is Dollar . Where does Aron eat, assuming he can\'t buy burgers in one place and fries in the other? Jake\'s Eats Joe\'s Eats Suppose Joe\'s decides to institute a new pricing policy: \"1 burger and 1 order of fries must be purchased together.\" How much would Aron be willing to tip the waitperson per week in order to be able to buy burgers and fries separately, if he eats at Joe\'s?

Solution

(a) Based on the given table for marginal values,

At Joe\'s:

When price of Hamburgers is $4, quantity is 4.

When price of French Fries is $1, quantity is 6.

At Jake\'s:

When price of Hamburgers is $4, quantity is 5.

When price of French Fries is $1, quantity is 4.

(b)

Consumer surplus (CS) is the difference between the maximum price a buyer is willing to pay and the price he actually pays.

At Joe\'s:

CS for burgers = 4 x $(10 - 4) = 4 x $6 = $24

CS for fries = 6 x $(6 - 1) = 6 x $5 = $30

Total CS = $(24 + 30) = $54

At Jake\'s:

CS for burgers = 5 x $(10 - 2) = 5 x $8 = $40

CS for fries = 4 x $(6 - 3) = 4 x $3 = $12

Total CS = $(40 + 12) = $52

(c) Since Joe\'s provides higher total consumer surplus, Aron will eat at Joe\'s.

(d) At Joe\'s, if 6 fries and 6 burgers are consumed together, total cost = 6 x $(4 + 1) = 6 x $5 = $30

Maximum tip = $(54 - 30) = $24