Question

If you receive 10 units of utility from consuming one cup of coffee and 16 units of utility from consuming two cups of coffee, which of the following is the likely amount of utility you will receive from consuming three cups of coffee?
a) 26 units of utility
b) 22 units of utility
c) 18 units of utility
d) 6 units of utility

Answer 1

Answer: 6 units of utility

Explanation:

The above scenario is termed diminishing marginal utility. It explains that as a consumer consumers a particular product, at first, the extra product consumed will give the consumer extra satisfaction but when the consumer continues to consumer more and more of the product, the satisfaction or utility derived from the product reduces.

If I get 10 units of utility from one cup of coffee, I'll derive satisfaction from it and may be eager and willing to have another cup which may lead to an increase of 16 utils but the third cup won't give enough satisfaction as the other cups I had previously taken. Hence the utility derived diminishes.