DQ 1 of 3

One of the main principles behind mainstream, neoclassical economic theory is that individuals act to optimize their own utility. Utility is generally defined as a satisfaction (pleasure) that an individual derives from consuming or using a specific good or service. One of the most interesting areas in utility theory is the paradox of value. There is a paradox of value due to the fact that absolute necessities such as water and air are valued (priced) very cheaply, whereas other goods like diamond, which are not necessities, are highly valued and command the most outrageous prices.

In order to understand the paradox of value, there is a need to distinguish total utility from marginal utility. The total satisfaction obtained from all units of a particular good or service consumed over a period of time is called total utility. An additional or incremental utility derived from consuming one more unit of a good or service is called marginal utility. Thus marginal utility is the change in the total utility that results from one unit change in consumption of a good or service within a given period of time.

Unit 3 Discussion Question 1 of 3

Using the Diamond-Water Paradox as a guide (refer to page 160 of the textbook) and two other goods of your choice, illustrate the paradox of value. Explain the roles total utility and marginal utility play to understand this paradox.

Unit 3 DQ 2 of 3

Utility is a satisfaction that an individual derives from consuming or using a specific good or service. Total utility indicates the total amount of satisfaction or pleasure an individual derives from consuming some specific quantity of a good or service. Marginal utility refers to the additional satisfaction a consumer gets from an additional unit of a good or service she/he consumes during a given period of time.
The law of diminishing marginal utility states that as a consumer consumes more and more units of a specific good or service, the additional utility the consumer derives from the successive units keep on diminishing (declining) over time.

Diminishing marginal utility explains a lot about consumer behavior in the economy. Select a specific consumer behavior and construct a "mini case study" that highlights the workings of marginal utility and how it affects the consumption pattern.DQ 3 of 3
1. Pick a specific industry from one of the market structures and explain how it would function and maximize profit.
2. Which market structures do you think benefit consumers more than others? Explain by using examples.
3. Society is exposed to a number of advertisements on TV, in radio and in other places daily. Which market structures are the most dominant in the advertisement industry? Why?

Unit 3 Case Study Utility and Market Models Discussion
The marginal product of any input in the production process is the increase in the quantity of output produced from one additional unit of that input. According to the Law of Diminishing Returns, the marginal product of an input declines as the quantity of the input increases over time, other factors remaining the same.
In the workplace, you often see diminishing marginal product, where the additional output produced per worker drops as they perform their jobs over time.
• As a manager, what are some practical things you could do to raise marginal product per employee that also benefit the firm? In your answer use a company you currently work for or one you worked for in the past.
• Give specific examples and discuss how diminishing marginal productivity affect marginal revenues and profits of firms.