Module 3 Wojdakowska Contains Unread Posts Aleksandra Wojdak

Module 3 Wojdakowskacontains Unread Postsaleksandra Wojdakowska Posted

Investopedia defines marginal benefit as “the maximum amount a consumer is willing to pay for an additional good or service. It is also the additional satisfaction or utility that the consumer receives when the additional good or service is purchased.” In regards to food products, it is common to address this additional satisfaction in terms of either a full stomach or taste. In the video clip from Cool Hand Luke, the marginal benefit drive appears to be not from hunger or craving, but instead, it appears that his drive in consuming all the eggs is simply from his desire to win a bet. As Luke begins the hour he has to eat all the eggs, we see the eggs are not hard to eat, as, at this point, he is satisfying any hunger he may have had.

His body is still benefitting not only his ego. However, as we see him begin to eat more eggs than an average body can handle, this benefit goes away and instead, we see the marginal cost begin. With each additional egg, Luke feels sicker and sicker; he reaches the constraint line of how many eggs he can consume. Each egg is now much harder to swallow and Luke is put in a position where the advantage of the marginal benefit and the cost begin to lessen. If Luke had to pay for each egg he ate, the marginal benefit would be even lower and therefore the marginal cost becomes more and more disadvantageous.

Not only would Luke have to deduct the cost of the eggs from any winnings he may accrue from the bet, he would also have to consider that if he were to fail the challenge, his losses will be even greater. Therefore, once the decision is made to follow through with eating the eggs it may be an additional drive towards marginal benefits that Luke has to pay for the eggs. He has to keep eating or else his cost will be much higher and not for much benefit. That is, his marginal utility per dollar spent would be lower. Marginal utility per dollar spent is a concept I frequently keep in mind when making my own purchase decisions.

For example, when grocery shopping for eggs. I tend to strive to purchase only organic food for the health benefits. However, sometimes these benefits are not high enough to justify paying much more for eggs. Or, perhaps there is a financial obligation I have to save for which means cutting corners on the daily expenses. In these moments, I’ll choose the carton of eggs that is less expensive as opposed to the desired organic brand.

The Ins and Outs of Marginal Benefits. (2020). Investopedia. Dean, E. (2020). 7.1 Consumption Choices – Principles of Microeconomics: Scarcity and Social Provisioning. Pressbooks.

Dakota Smith Contains unread posts Dakota Smith posted Jul 13, :51 PM Subscribe What is driving his marginal benefit is his friends that placed a bet on him not to let them down and also a free meal. This out weighs his marginal cost because he is not paying for the eggs and has nothing to lose. His decision would change if he had to pay for the eggs because of the law of diminishing marginal utility, which according to Agarwal is that the first unit of a good will have more utility than the second time you have that good, and so on. The more eggs he eats, the more money he loses, and the more he doesn't feel good. At some point, the cost would outweigh the benefits.

According to Moffatt, marginal utility is how much one more unit will increase our happiness. You can use this in our daily lives to make decisions. In fact, I did when it was time for me to buy a new phone. I bought the iPhone 8 instead of the iPhone 10 because the cost as not worth the utility per dollar spent. The iPhone 10 was nicer but it was also more expensive.

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The concept of marginal benefit and its relationship with consumption choices forms a crucial part of understanding economic decision-making, both in everyday life and in specific scenarios like eating contests or purchasing electronics. Marginal benefit, as defined by Investopedia, is the maximum amount a consumer is willing to pay for an additional unit of a good or service, reflecting the additional satisfaction or utility derived from that unit. As consumption increases, the marginal benefit typically decreases—a phenomenon explained by the law of diminishing marginal utility, which asserts that each additional unit of consumption provides less additional satisfaction than the previous one.

This principle is vividly illustrated in the "Cool Hand Luke" egg-eating scene, where Luke's marginal benefits initially outweigh his marginal costs. At the onset, his motivation may be driven by a desire to win the bet or out of curiosity, with little adverse physical consequence. The eggs are easier to eat, and the utility gained from completing the challenge is high. However, as Luke continues and the number of eggs consumed surpasses his body's capacity, he begins to feel increasingly ill, and the marginal cost—diminished health and increasing discomfort—begins to outweigh the marginal benefit. This aligns with the economic understanding that as consumption continues, the additional utility decreases, and the cost—both physical and opportunity—becomes more significant.

If Luke had to pay for each egg, his decision-making process would shift dramatically. The marginal utility per dollar spent (MU/p) becomes a central consideration, as the actual financial cost would reduce the net benefit of each additional egg. In such scenarios, the diminishing marginal utility would accelerate, making continued consumption less justifiable economically. This is analogous to real-world purchasing decisions, where consumers often weigh the marginal utility of a product against its price. For instance, when grocery shopping for eggs, consumers might prefer organic eggs for health reasons but may opt for more affordable options due to budget constraints, reflecting a trade-off driven by the marginal utility per dollar spent.

Similarly, the decision to purchase a more expensive smartphone like the iPhone 10 over an iPhone 8 illustrates using marginal utility in everyday choices. While the iPhone 10 may offer higher utility due to its features, the increased cost diminishes its marginal utility per dollar, especially if the consumer perceives the upgrade as marginally beneficial. In such cases, consumers evaluate whether the additional utility justifies the extra expenditure, and this calculation often leads to choosing the less expensive alternative when budgets are tight.

The relationship between price elasticity of demand and total revenue also plays a key role in business decisions regarding pricing strategies. Elasticity measures how sensitive the quantity demanded is to a change in price. A product with inelastic demand, such as life-saving medications, shows little change in demand with price changes, implying that an increase in price can raise total revenue. Conversely, an elastic product, like leisure travel, experiences significant demand fluctuations with price changes, making price hikes risky for revenue. For example, if a company sells a product with inelastic demand (determinants include lack of substitutes and necessity), raising prices would likely increase total revenue. In contrast, raising prices on a elastic product could lead to a sharp decline in quantity demanded, thus decreasing total revenue.

From a business perspective, producing and selling inelastic products can be advantageous because firms can increase prices without significantly reducing demand, thereby maximizing revenue and profit margins. However, producing elastic products requires careful pricing strategies to avoid losing customers to substitutes. For instance, pharmaceutical companies producing essential medications may benefit from inelastic demand, whereas recreational services need to consider elasticity to optimize revenue.

In conclusion, the dynamic interplay between marginal benefits, marginal costs, and price elasticity influences individual consumption decisions and strategic business pricing. Recognizing how the law of diminishing marginal utility guides personal choices helps consumers allocate their limited resources efficiently, while understanding demand elasticity aids firms in setting optimal prices to maximize revenue. Whether choosing eggs, smartphones, or pricing products, these economic principles provide valuable insights into decision-making processes in various contexts, ultimately illustrating the pervasive influence of microeconomic theory on everyday life and business strategy.

References

• Agarwal, P. (2020, May 21). Marginal Utility. Retrieved from https://example.com/marginal-utility
• Investopedia. (2020). The Ins and Outs of Marginal Benefits. Retrieved from https://www.investopedia.com/terms/m/marginalbenefit.asp
• Moffatt, M. (n.d.). How Marginal Utility is Used in Economics. Retrieved from https://example.com/marginal-utility-economics
• Dean, E. (2020). Consumption Choices – Principles of Microeconomics. Pressbooks.
• Case, K. E., Fair, R. C., & Oster, S. M. (2020). Principles of Economics (13th ed.). Pearson.
• Krugman, P., & Wells, R. (2018). Microeconomics (5th ed.). Worth Publishers.
• Mankiw, N. G. (2020). Principles of Economics (9th ed.). Cengage Learning.
• Besanko, D., & Braeutigam, R. R. (2010). Microeconomics (4th ed.). John Wiley & Sons.
• Blanchard, O., & Johnson, D. R. (2013). Macroeconomics (6th ed.). Pearson.
• Parry, T., & Stiglitz, J. E. (2017). Economics of Public Policy. Routledge.