From the “Honest Tea” label:
One Swathmore student -- Randy Goldstein -- tells this story about the tea...
"The label of Barry Nalebuff's Honest Tea, which is sold on my campus, had the economics
department up in arms last year. I don't have one in front of me, but in addition to the quote you
shared, the label contains a graph plotting taste (total quality or utility in a sense, I guess) on the yaxis and sugar (presumably the only important input to the manufacturers) on the x-axis. The
graph is parabolic, revealing an increasing marginal product of sugar up to a point, and then a
diminishing marginal product all the way down to the x-axis. The manufacturer puts the
competition way down past peak, as one might expect. However, the manufacturer plots Honest
Tea just BEFORE the peak of the curve. That is, it seems they do not use sufficient sugar to
maximize taste by their own standards."
Did Honest Tea make a mistake? Yes No
If no, explain in at most two sentences what is wrong with the argument made by the Swathmore
student.
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