Marginal benefit is a concept in economics that refers to the added satisfaction or utility a consumer enjoys from an additional unit of a good or service. It can be expressed as the number of dollars a consumer is willing to spend for additional units or with imaginary units such as "utils". Marginal benefit can be positive, negative, or zero/neutral.
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Positive Marginal Benefit: This occurs when the consumption of more units of a product brings more happiness to the customer. For example, if someone goes to a cafe and has a coffee, having a second coffee would bring them additional happiness. Therefore, the marginal benefit of consuming a second coffee is positive.
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Negative Marginal Benefit: This occurs when the consumer consumes too much of a certain unit, and the additional unit of the product has negative consequences. For example, eating the fifth unhealthy snack or drinking the fifth alcoholic drink may cause reduced satisfaction.
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Zero/Neutral Marginal Benefit: This occurs when no marginal benefit is gained or lost with each additional unit. The consumer is indifferent to the next unit they consume, and there is no additional happiness or dissatisfaction gained regardless of the next decision made.
The formula for marginal benefit is the change in total benefit divided by the change in quantity. Marginal benefit is often used by companies to analyze the marginal cost average and achieve economies of scale. Companies may conduct research on marginal benefits and use that information in setting up a pricing strategy for specific units.
