Question

The campus bookstore sells a campus mug for ​$10. When you buy a second campus mug​, ​however, its price is only ​$6. How does this relate to marginal​ utility?

Answer 1

Answer:

Marginal utility is the benefit of consuming additional unit of a product and it is inversely proportional to price.

Explanation:

Utility is the satisfaction derived from consuming a particular product.

As consumption continues, marginal utility is the benefit of consuming additional units of the product. Marginal utility reduces as consumption increases.

So the consumer is less willing to buy at current price. However the consumer will be more willing to buy more at a reduced price.

The campus bookstore is using the knowledge of this by selling the first mu for $10 and subsequent one for $6. The consumer will still be willing to buy at the reduced price.