Question

The meal plan at University A lets students eat as much as they like for a fixed fee of $500 per semester. The average student there eats 250 pounds of food per semester. University B charges $500 for a book of meal tickets that entitles the student to eat 250 pounds of food per semester. If the student eats more than 250 pounds, he or she pays $2 for each additional pound; if the student eats less, he or she gets a $2 per pound refund. If students are rational, at which university will average food consumption be higher? Explain briefly.

Answer 1

If students are rational, the average food consumption will be higher at University A.

At University A, the students pay a fixed fee of $500 per semester and can eat as much as they want. Therefore, there is no additional cost to eating more food. As a result, the students will have an incentive to eat as much as they can to get the most out of their fixed fee.

At University B, the students pay $500 for a book of meal tickets that allows them to eat up to 250 pounds of food per semester. If they eat more than 250 pounds, they have to pay an additional $2 per pound. This means that there is a cost associated with eating more food. As a result, the students will have an incentive to eat less food to avoid paying the additional cost.

Therefore, the average food consumption will be higher at University A where there is no additional cost to eating more food.