Marginal Benefit & Movie Tickets: Applying the Rule of Rational Choice

How Many Movie Tickets Should You Buy? Understanding Marginal Benefit and Rational Choice

This example illustrates how the rule of rational choice helps determine the optimal consumption level. Let's say a consumer wants to figure out how many movie tickets to buy each month.

The Scenario:

Table 2-3 shows the marginal benefit a consumer receives from watching theatrical-release films each month. The price of each movie ticket is $8.

Table 2-3: Marginal Benefit of Movie Tickets

| Movie Tickets per Month | Marginal Benefit (in dollars) ||-------------------------|----------------------------------|| 1 | $10.50 || 2 | $9.50 || 3 | $8.50 || 4 | $7.50 || 5 | $6.50 || 6 | $5.50 || 7 | $4.50 || 8 | $3.50 |

Applying the Rule of Rational Choice:

The rule of rational choice states that a consumer will continue consuming a good or service as long as the marginal benefit (MB) is greater than or equal to the price.

• MB > Price: Consume more.* MB < Price: Consume less.* MB = Price: This is the optimal consumption level.

Finding the Optimal Number of Movie Tickets:

Let's compare the marginal benefit from the table to the $8 ticket price:

• 1 Ticket: MB ($10.50) > Price ($8.00) - Buy more!* 2 Tickets: MB ($9.50) > Price ($8.00) - Buy more!* 3 Tickets: MB ($8.50) = Price ($8.00) - This is the optimal amount! * 4+ Tickets: MB (less than $8.00) < Price ($8.00) - Buying more would mean losing money in terms of value.

Conclusion:

A rational consumer will purchase 3 movie tickets per month because that's where the marginal benefit equals the price. This example demonstrates how marginal benefit analysis and the rule of rational choice guide consumer decisions.