I'm taking one of my initial courses in Economics on my own and currently reading Economics by McConnel, Brue and Flynn. On the page 13, the book is trying to explain about Optimal Allocation. They are giving example of production of pizzas and robots, here is the table:

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A, B, C, D, E are the possible alternatives of production when resources are allocated accordingly. Now, the book asks "of all the attainable combinations of pizzas and industrial robots, which is optimal (best)?" Then they go on to explain a little bit about marginal benefit and marginal cost and the optimal amount of the activity occurs when MB = MC.

In the next paragraph they write, "Consider pizzas. We already know from the law of increasing opportunity costs that the marginal costs of additional unit of pizza will rise as more units are produced. At the same time, we need to recognize that the extra or marginal benefits that come from producing and consuming pizza decline with each successive unit of pizza. Consequently, each successive unit of pizza brings with it both increasing marginal costs and decreasing benefits."

How marginal benefit is declining as more and more pizzas are produced? Increase of marginal cost is understandable as more and more robots are being sacrificed for successive units of pizza, but won't more and more pizza gonna fulfill more and more satisfaction of people? Why marginal benefit is decreasing? Does it have to do with supply and demand (more pizzas means lesser will be its price)?


1 Answer 1


You can think of it as the marginal benefit per person. The first piece of pizza you eat is amazing, it has a very high marginal benefit. But say you eat five whole pizzas in one sitting and then are immediately offered another slice. That next slice doesn’t seem so appealing, does it? You’re already full and starting to get sick of it. That slice has a low marginal benefit. Certainly lower than that first slice. You can also think of this as a continuous process (i.e the second slice is a little less satisfying than the first, and the third is a bit less satisfying than the second and so on).

So, as the total consumption of pizza increases, the marginal benefit (i.e. the benefit of the next unit) gets smaller.


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