Question

What is marginal utility? If marginal utility of product A priced at `$25` is `50` and that of product B priced at `$5` is `20`, which product maximizes utility for consumer?

Answer 1

A typical consumer may maximize utility by going for product B.

Explanation:

This is a question more related to Micro-Economics (not Prealgebra). Well as the subject is not covered by Socratic, I will still try to answer it.

Every consumer product gives certain utility. I may be yearning, say for ice cream and am ready to pay for it. But after first scoop for which I may pay say `x` amount, for second scoop my yearning will of course be less. Hence marginal utility of every additional scoop to the individual will be less and will be continually decreasing.

According to micro economics, every body pays a price equivalent to its marginal utility. If price is less, one will continue to have until price exceeds marginal utility, when one may not like to pay.

In the given question, marginal utility for product A is `50` against a price of `$25` i.e `2` units per dollar. In case of product B, it is `20/5=4` units per dollar. Hence, a typical consumer may maximize utility by going for product B.

However, as marginal utility is a continuously decreasing function, optimal solution depends critically on the function. For example, in case of food items, it may in fact turn negative after consumption of some units.