Question

At Nice Price for the Ice, an ice cream parlor, customers routinely buy a scoop of ice cream for $2.75. If consumers purchase one scoop of ice cream at $2.75, then why don't they keep buying more and more scoops for $2.75 until the store sells out?

Answer 1

Answer:

Consumers would not keep buying ice cream at $2.75 because after purchasing a certain amount of ice cream, utility would be maximised and consumers would not value ice cream at $2.75 anymore. Consumers would not purchase a product it the marginal utility that would be derived from consuming the product is less than the price.

According to the law of diminishing marginal utility, as more units of a product is increased, total utility increases but at a decreasing rate.

Explanation:

Marginal utitiy is the increase in utility that is derived from consuming one more unit of a product.