Kindly forgive the length of this post, as I am not very familiar with much of the terminology and I'm trying to explain ideas which are very basic in my mind but which in reality I understand can be much more complex.

I am seeking to better understand the concept of diminishing marginal utility and how it could apply in specific service-industry concepts. I found that most textbooks simply state that the concept may apply to goods and services, however they only list examples pertaining to goods, in particular by adding in terms of quantity.

What about the next unit added in terms of quality, in a service context?

I will provide an example where I want to see if the concept (or rule) can be applied validly.

Let's take a hypothetical fine dining example, for instance. Service quality is expected to be/and generally should be much better than at regular fare restaurants. Food quality, just the same, in different ways (ingredients, preparation, presentation)... I am also assuming in this hypothetical example a few things:

  • although there are goods being sold here, this is largely a service context, as the assumption be is fine dining is mainly based on the service, the attentiveness of the staff for example being very important for many who enjoy fine dining experiences
  • when I said quality (of goods and services) is expected to be better, this is another assumption I'm making in this hypothetical example that there's no argument where it is or not, I understand it is a subjective equality to some extent, and that many fine dining restaurants will not stand up to the test of say... Some fine dining connoisseur with high expectations. This is disregarded in the example to keep it simple.

How can one describe marginal utility in terms of quality of a service within the context of a service industry?

Can we somehow apply the concept of diminishing returns in this manner (again within the context of a restaurant):

1-bad food + service: very low cost, negative benefit, gastrointestinal issues, frustration, indignation 2-okay food+service: higher cost, low benefit, full tummy, long wait times, nothing special, (within the context of service industry here again not someone who is only hungry and seeking food) 3-good food+service: again assuming higher cost, more benefit obtained, better food, shorter service from kitchen to table, now the hypothetical customer is deriving more benefits is the point 4-great food+service: come at a added premium, food tastes amazing, staff is very knowledgeable about what they serve, pleasant, and the customer leaves very satisfied ... n-amazing food+service, fine dining and the such (many levels of fine dining and respective added premiums): staff is attentive to minute details and needs of customers, from the arrival,valet service, maitre d, sommelier... You don't find these in regular restaurants and there's definitely a much higher premium and certain levels of tips expected. Satisfaction? The customer leaves very satisfied. More than (4)? It's hard to say, this is very subjective.

But it's likely that going from 1 to 2, 3, 4, all the way to N, I suspect there's a diminishment in the benefit derived from the better quality of service and food.

I hope someone can read this and share some ideas to better make sense of this. Any reading which should also help me understand what I'm trying to say (and better express it) would be much appreciated.

Also, I noticed that certain assumptions are made when discussing the concept of diminishing marginal utility that I read, something along the lines of Rational Choice.

Thank you for reading this long post.


1 Answer 1


We can see services of different qualities simply as different “products”. Going to Mcdonalds would be product x and going to fine dining restaurant “the french laundry” with their fixed menu would be product y.

Diminishing returns apply to a specific product. The first time I go to “the French laundry” its great. But then suppose I go there every night and even twice a day. By the end of the month, I will be tired of it. The 100th time I go there will simply be less special and fun as that first time. I will get tired of the same ambiance and decor and waitstaff and will want to try another restaurant.

Also note that if they change their fixed menu, it would again be a different product they’re offering.


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