Use the law of diminishing marginal utility to explain why Domino's and Pizza Hut allow the purchase of a second pizza for only $4 when one pays full price (around $10) for the first pizza. Why not simply charge $7 a pizza instead?
The second pizza gives less marginal utility than the first. The companies are trying to charge a high price for the first pizza, which gives high marginal utility, and get customers to buy that second pizza, with relatively low marginal utility, by charging a price that reflects the lower MU. At $7 apiece, the companies might lose selling the second pizza and be worse off than selling two pizzas at an average price of $7.
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