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Diminishing marginal utility is traditionally a microeconomic concept and often holds for an individual, although the marginal utility of a good or service might be increasing as well. For example, dosages of antibiotics, where having too few pills would leave bacteria with greater resistance, but a full supply could affect a cure.
Gossen's First Law is the "law" of diminishing marginal utility: that marginal utilities are diminishing across the ranges relevant to decision-making. Gossen's Second Law , which presumes that utility is at least weakly quantified, is that in equilibrium an agent will allocate expenditures so that the ratio of marginal utility to price ...
Indifference curves exhibit diminishing marginal rates of substitution; The marginal rate of substitution tells how much 'y' a person is willing to sacrifice to get one more unit of 'x'. [clarification needed] This assumption assures that indifference curves are smooth and convex to the origin.
This shows that there are diminishing marginal returns associated with consumption, as each additional unit of consumption adds less utility. The expected utility model states that individuals want to maximize their expected utility, as defined as the weighted sum of utilities across states of the world.
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Marginal utility usually decreases with consumption of the good, the idea of "diminishing marginal utility". In calculus notation, the marginal utility of good X is =. When a good's marginal utility is positive, additional consumption of it increases utility; if zero, the consumer is satiated and indifferent about consuming more; if negative ...
Similarly, if the third kilogram of seeds yields only a quarter ton, then the marginal cost equals per quarter ton or per ton, and the average cost is per 7/4 tons, or /7 per ton of output. Thus, diminishing marginal returns imply increasing marginal costs and increasing average costs. Cost is measured in terms of opportunity cost. In this case ...
Convex preferences with their associated convex indifference mapping arise from quasi-concave utility functions, although these are not necessary for the analysis of preferences. For example, Constant Elasticity of Substitution (CES) utility functions describe convex, homothetic preferences.