Question

Describe and illustrate the concept of marginal utility and how utility maximization impacts consumer choice and eventually production. Please provide an example.

Answer 1

Marginal utility is defined as the benefit a consumer gains from consuming an extra unit of product or service. In general terms the benefits they get are the pleasure they derive from consuming good. Utility maximisation impacts the consumer choice because of diminishing marginal utility, which states that all being same when the consumption of a commodity increases the marginal utility derived from every unit unit of good consumed declines and even eventually becomes negative. A simple example example is that a person feels better with initial bits of bread in breakfast, than last one. Also he can't continually keep on consuming whole day. Thus a consumer choice is depend on marginal utility based on law of diminishing marginal utility. A consumer consumes a good till its total utility becomes maximum i.e when marginal utility from particular good reaches to zero. In this way it also effects eventually the production of commodity. If a good gives more marginal utility , may be in terms of purpose or something else, its demand will thus determined , on which base any good's production is carried out. IT is also explained Through graph below.