What Is a Marginal Benefit in Economics and How Does It Work

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What Is a Marginal Benefit in Economics, and How Does It Work

What is Marginal Benefit?

Marginal Benefit is the extra satisfaction or benefit that a consumer gets from purchasing an additional good or service. The consumer’s marginal utility decreases as consumption of the good or service increases.

In the business world, marginal benefit to producers is often referred to as marginal revenue.


Marginal advantage is the maximum amount a consumer will pay for an additional good or service.
Marginal advantage is also the extra satisfaction a customer gets from purchasing additional goods or services.
Marginal benefit generally decreases as consumption increases.
When a consumer is willing to pay more than the market price for a good or service, it is called consumer surplus.
The marginal benefit of some essential products, such as drugs, does not diminish over time.
Companies can use the research they do to hammer out the best possible price point for any deal.

Understanding Marginal Benefit

Also known as marginal utility, it is a marginal benefit that applies to any additional unit purchased for consumption after the first unit has been acquired. The term utility is used to describe the level of satisfaction that the consumer assigns to the unit used.

Often expressed as the number of dollars a consumer is willing to spend for a unit, utility assumes that the consumer receives at least some intrinsic value equal to the dollar amount paid for the good.

For example, if a person buys a burger for $10, it is assumed that the consumer gets at least $10 of that item.

Diminishing Marginal Benefit

When units are used, the user often derives less benefit or satisfaction from the use.

To illustrate this, consider the above example. Suppose a customer wants to buy more burgers. If this consumer is willing to pay $10 for that additional burger, then the marginal benefit of consuming that burger is equal to the initial purchase of $10.

However, if the consumer decides that he is only willing to spend $9 on the second burger, the marginal benefit is $9. The more burgers a customer has, the less he is willing to pay for the next burger. This is because interest decreases as consumption increases.

Marginal Benefit and Unit Cost

Although the consumer is willing to pay $10 for a burger, $10 is not necessarily the price of the burger. The price is determined by market forces. The difference between the market price and the price the consumer is willing to pay – when the perceived price is greater than the market price – is called consumer surplus.

In cases where the customer considers the price of an item to be below the market price, the customer may not proceed with the transaction.

Items Without Change in Marginal Benefit

Not all products change when it comes to their perceived value. For example, prescription medications can retain their effectiveness for a long time as long as they continue to perform as needed. Moreover, the marginal benefits of some basic commodities, such as bread or milk, are relatively constant over time.

Minor Benefits For Business

Fringe benefits have applications for businesses, especially when it comes to marketing and research. Companies need to consider how the consumer might weigh the marginal cost of additional purchases against the marginal benefit. Marginal cost is an additional cost incurred when producing a subsequent unit.

Going back to the example above, if the customer buys the first burger for $10 and the second for $9, he can make a marginal profit of $9 on the second burger and buy it given the marginal cost of $9. But if the customer is full after just one burger, the marginal cost of $9 will outweigh the utility, and he may not buy it.

Companies can use the research they do to hammer out the best possible price point for any deal. Companies can also use this research to see what additional costs are involved in selling the second item compared to the first.