Question

1.) Why is it that the more we do something, the better we get it but...

1.) Why is it that the more we do something, the better we get it but we also receive diminishing returns? How can these two things happen? Is there a conflict?

2.) Why do consumers make a choice by looking at both the Marginal Utility (MU) and the price for a product (MU/P) rather than just the price or just the marginal utility? Explain

Homework Answers

Answer #1

1) No there is no conflict . The more we do something the better we get at it , this phenomenon is called specialization or learning by doing .

Diminishing returns occurs due to other factors . In a production process there are other factors of production involved by machinary or capital good . So at some point when there are too many workers working on a single machine it leads to over crowding and hence causes diminishing returns . An additional workers cannot perform well on the same machine that is being used by so many other workers and hence marginal output falls .

2) They do this because of the law of marginal utility equivalence which tells us that marginal utility per dollar must be same for all products consumed . Or in other words the marginal utility received from the last dollar spent on each good must be same , only this can lead to utility maximization .

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