Wednesday, August 5, 2009

The economics of drinking a milkshake

As a lifelong cheapskate, I was always attracted to the large-sized milkshakes at fast food restaurants. The price was only a few dollars, and a quick scan of the different sizes showed that the largest container had the cheapest ratio of ounces of drink per penny. Burger King even hung a mobile of its cups with a “Best Value” laurel wreath around the biggest cup.

Even though I didn't realize it at the time, the biggest cup was never the best value for me. What the price-to-size ratio leaves out of the equation is the true cost of a milkshake and the actual benefits gained.

I buy milkshakes to gain enjoyment by drinking them. The first few sips are the best, when the inside of your body is first cooled by the cold, creamy material and you really take in the taste. Enjoyment tapers off after that and the remainder of the drink is consumed with far less attention.

These diminishing returns in milkshake consumption mean that the first few ounces of 'shake are the most valuable to us in terms of enjoyment, and subsequent ounces bring us less and less. Forty ounces of milkshake does not give twice the pleasure of twenty ounces. Because of diminishing returns, it gives less than forty.

Milkshakes are drunk to increase happiness, so the real value is in the price-to-happiness ratio, not price-to-size.

Economist and textbook author Greg Mankiw says the cost of anything is what we give up to have it. The cash price of the milkshake is only part of the cost. Milkshakes are filled with sugar and since my diet already includes plenty of dairy, I have to admit that milkshakes ever so slightly tax my health. Each straw sucked to the very bottom rim of the cup means just more fat for my body to process.

So while the amount of enjoyment in each ounce of milkshake diminishes over time, the health cost remains constant. Spending more money means I get more ounces of milkshake, but the enjoyment increase - if any - is minimal and the cost to my health goes up linearly.

When you compare actual cost to enjoyment, the small size is the best value. Like I said from the beginning, I'm a cheapskate, so now I always buy a small.

No comments:

Post a Comment