Microeconomics help. How many pounds of potatoes can she buy?

Follow
  • Follow publicly
  • Follow privately
  • Unfollow
Potatoes cost Janice $1.25 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth $1.50, the ...show more
Best Answer
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.
  • 1
  • Comment

Other Answers (1)

  • ? answered 3 years ago
    sometimes teh bank steals my money, and today someone probly tried to use my bank card.

    i tried to buy beer, and i had slept till 3PM (15 hours of sleep)

    and my $5 wasn't there

    and tehy lied and said my pin number wasn't right, and it was types wrong 9 time, i only tried it like 5 times

    Source(s):

    we have a potatoe for dinner and maybe one more, then we must buy more of them, somehow
    • 1
    • Comment
  • Sign In 

    to add your answer

Who is following this question?

    %
    BEST ANSWERS
    Member Since:
    Points: Points: Level
    Total Answers:
    Points this week:
    Follow
     
    Unfollow
     
    Block
     
    Unblock