Joan loves sushi. Her first piece of sushi normally gives her a marginal benefit of $5. Each additional piece yields a marginal benefit that declines by $0.25 per piece. If her favorite sushi bar charges $2.75 per piece of sushi, how many pieces should she eat?

10 pieces of sushi

Explanation:

She she only eat the sushi to the point that her maginal benefit equals her marginal cost. If the marginal cost becomes higher than the marginal benefit, then she should stop buying and eating the sushi.

The first piece of sushi gives her a marginal benefit of $5, while the cost of each sushi is $2.75. Because of the law of marginal diminishing returns, each additonal piece of sushi gives her $0.25 less in marginal benefit. We can tally the information in this way:

#                                            MB                        MC

1st Piece of Sushi                 $5,00                    $2.75

2nd Piece of Sushi               $4.75                    $2.75

3rd Piece of Sushi                $4.50                    $2.75

4th Piece of Sushi                $4.25                    $2.75

5th Piece of Sushi                $4.00                    $2.75

6th Piece of Sushi                $3.75                    $2.75

7th Piece of Sushi                $3.50                    $2.75

8th Piece of Sushi                $3.25                    $2.75

9th Piece of Sushi                $3.00                    $2.75

10th Piece of Sushi              $2.75                     $2.75

11th Piece of Sushi               $2.50                     $2.75            

Thus, Joan should only eat 10 pieces of sushi, because by the eleventh piece of sushi, the marignal benefit is lower than the marginal cost.