Marginal Utility Theory, Product Differentiation, And Revenue/Profit Maximization

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“Apply the concepts of marginal utility theory, product differentiation, and revenue/profit maximization to some event in your personal, daily lives.” [1]

Marginal Utility Concept Application

From the three concepts at hand this is by far the easiest to exemplify. According to Sloman and Sutcliffe the concept of utility is directly related to that of satisfaction [2]. The satisfaction that one individual takes from consuming something is called utility.

Now when we consider the utility concept we must differentiate first between total utility and marginal utility.

Total utility is the total satisfaction that one individual gets from consuming all the units of one same thing during a specific timeframe. ie. We can analyze the utility of consumption of coke during one day to analyze the “optimum” number of cokes to be consumed or we could analyze the utility of each sip we take from a can of coke to analyze the best size of can to offer in the market for example. No matter which, to the analysis of this as a whole, the total utility of the consumption of coke would be in one scenario the added utilities of all the cans of coke drank during the say in the first example, or the total utility of drinking one can of coke in the second example.

Marginal utility on the other hand is the utility that one individual gets from consuming one extra unit of one same thing during a specific timeframe. ie. We can look at the marginal utility of drinking one more can of coke on the same day, or from taking another sip from the coke bottle. In the marginal utility concept we can say that it focus on the satisfaction that individual units of one same thing give to the person consuming it.

Having said this I am going to give as a personal example something that happened to me a while back (not a pretty story). I was addicted to the Pokemon game a few years back when it was launched on the GameBoy console.

Initially I spent as much as 5 to 6 hours straight on the game as my Pokemons grew stronger and I went on my missions. Every pokemon caught and trained gave me a very high marginal utility that ensured I kept playing, until I had to close the game either due to having to sleep, eat or batteries running flat. As the game progressed I got less and less satisfaction from playing the game and catching pokemons.

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