Best Answer - Chosen by Voters
You've confused cost with value.
The store has gazillions of potatoes, which they value at $1.25/lb.
Janice has a lack of potatoes, and she values the first pound at $1.50. This discrepancy is what makes trade possible: a difference in valuation.
I believe that the writer has oversimplified the point this supposedly illustrates. If Janice is a completely rational consumer, she will buy only the first pound of potatoes at $1.50, regardless of how much larger her potato budget is. The second pound is worth only $1.14 to her, a loss of 11 cents if she buys it.
I believe that the book is trying to illustrate the principle of unit utility, which does not apply in this case. Unit utility (or whatever it's called in your textbook) has us examining the unit price of Janice's choices as a whole:
weight . . value . . . unit-value
1 lb . . . . $1.50 . . . $1.50 / lb
2 lb . . . . $2.64 . . . $1.32 / lb
3 lb . . . . $3.79 . . . $1.26+ / lb
4 lb . . . . $4.09 . . . $1.02+ / lb
In this scenario, Janice would buy 3 pounds at $1.25/lb, since she believes the *average* value per pound is $1.263333... With only $3.00 to spend, she would buy two pounds she could afford.
You see the principle? You see where the problem writer slipped up in the paradigm? As given, Janice still maximizes her overall valuation by stopping at one pound.
The correct paradigm for this is for the store manager to have a demand curve handy, and decide how large to make the sacks of potatoes the store will sell as its only packaging size. In this case, the store would package potatoes in 3-pound bags; all the Janices in town would deem the bag barely worth the price, but buy them for the slim (four-cent) profits to their households.