Be advised that McDonald\'s and Burger King are first and second in market share

Question

Be advised that McDonald's and Burger King are first and second in market share in t hamburger restaurant market. A. Consumer Surplus from Lunch at McDonald's Jeremy and Latisha are UIC students who regularly buy hamburgers at McDonald's for lunch. The table shows their daily marginal benefit (MB) schedules for McDonald's hamburgers, with marginal benefit measured as "number of dollars per hamburger." The price of a hamburger is S5. Jeremy and Latisha each buy three hamburgers for lunch. Marginal Benefit Hamburger Jeremy Latisha First Second Third Fourth 25 30 15 10 6 A1. Compute Jeremy's consumer surplus. Make sure you state exactly how consumer surplus is measured-not just a number, a number of something. In purchasing three hamburgers, is Jeremy behaving rationally or irrationally? Explain your answer. A2. Compute Latisha's consumer surplus. Make sure you state how consumer surplus is measured not just a number, a number of something. In purchasing three hamburgers, is Latisha behaving rationally or irrationally? Explain your answer. F7 FB F5

Explanation / Answer

Solution. A1. Jeremy's consumer surplus = (25-5)+(15-5)+(6-5) = $31. This is because the marginal benefit in terms of dollars is the amount the consumer is willing to pay and consumer surplus is the difference between what the consumer is willing to pay and what she actually pays.

Jeremy is behaving rationally as she is expected to continue purchase till the point where marginal benefit is equal to price.

A2. Latisha's consumer surplus = (30-5)+(10-5)+(2-5) = $27. This is because the marginal benefit in terms of dollars is the amount the consumer is willing to pay and consumer surplus is the difference between what the consumer is willing to pay and what she actually pays.

Latisha is not behaving rationally as she is expected to continue purchase till the point where marginal benefit is equal to price. However, the third hamberger gives marginal benefit of $2 which is less than the price i.e $5.

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