Answer to Question #43905 in Microeconomics for Kitty

Question

Pretend that you have just been surprised with a genuine e-mail that says you have just been selected by your favorite pizza delivery company that every day for the next month you will receive your favorite pizza for lunch and another of that same favorite pizza for dinner, delivered to your home and ready to eat.Using the concept of diminishing marginal utility, discuss how excited you will be on the first day of your winning.What about your excitement on the 10th day?What about your excitement on the 30th day?Now, pretend that your favorite national brand gasoline company informs you that you have won as much as you want free gasoline, as much as you want, from any of their gas stations, anywhere in the country every day for a year.Using the concept of diminishing marginal utility, discuss how excited you will be on the first day of your winning.What about your excitement on the 10th day?What about your excitement on the 30th day?Again, considering the concept of utility, what makes theme different?

Answer 1

The law of diminishing marginal utility says,first, that the marginal utility of each homogenous unit decreases as the supply of units increases (and vice versa); second, that the marginal utility of a larger-sized unit is greater than the marginal utility of a smaller-sized unit (and vice versa). The first law denotes the law of diminishing marginal utility, the second law denotes the law of increasing total utility. According to the concept of diminishing marginal utility, on the first day the utility of eating first pizza will be high enough, but then with every new pizza the utility will decrease. The excitement on the 10th day will be smaller, and on the 30th day may be even negative. As for the gasoline. on the first day of my winning I will be very excited, on the 10th day I will be less excited, and on the 30th day free gasoline will become usual for me. So, considering the concept of utility, these situations are different: in the
first case the marginal utility may become even negative, but in the second case it decreases, but not below zero, because you need gasoline everyday, but pizza is not your main food for every day.