What is a Marginal Benefit?
Definition: Marginal benefit is the benefit that consumers enjoy for paying for an additional good or service. Often referred to as marginal utility, the term also denotes the additional satisfaction that comes into play when consumers receive an additional good or service. Therefore, the measure describes the level of satisfaction that consumers assign to the consumption of an additional unit.
The measure is often expressed in dollar amount to indicate the amount of money that consumers are willing to spend to gain the satisfaction of an additional good or service. As more units are consumed, consumers tend to incur more. In return, it reaches a point where the consumer receives less utility or satisfaction on the addition of extra units. Conversely, marginal benefit tends to decrease as consumption increases, given the incremental amount of satisfaction.
Marginal benefits analysis comes in handy when businesses are in the process of conducting marketing and research operations. The measure allows businesses to understand that consumers compare the marginal cost incurred to purchase an additional unit to the marginal benefit.
Likewise, marginal benefits can help companies ascertain the best possible price point of a product that would trigger an increase in purchases. Companies can also use the analysis to ascertain additional expenses likely to come into play upon the sale of the second item relative to the first.
Marginal Benefit Example
Assume a consumer who is willing to pay $20 for an ice cream, upon consuming the first ice cream the consumer decides to purchase another one. However, if the consumer decides that the second ice cream should be $15, then the marginal benefit, in this case, would be $15. Conversely, the marginal benefit decreases as the consumer consume more ice cream.
Therefore, the utility or satisfaction of a good or service is based on the benefit that a consumer derives rather than the price incurred. Similarly, some products do not experience changes when it comes to marginal benefits.
Medical products are some of the items that tend to retain their utility or satisfaction levels, even with an increase in consumption. As long as a given medication continues to perform as needed, a consumer would be open to continue spending the prescribed amount
Marginal Benefit vs Marginal cost
Marginal benefit and magical cost-share a number of attributes given their ability to measure how cost or value of a product changes. However, they also differ a great deal. For starters, marginal benefit is a measurement from the consumer standpoint, designed to measure satisfaction level upon consumption. Marginal cost, on the other hand, is taken from the producer standpoint as it measures the additional cost that comes into play on the sale of an additional unit of good or service.
Likewise, marginal benefit, which is a measure of consumer satisfaction, tends to decrease with the consumption of more units. The cost of producing additional units, on the other hand, tends to decrease as more products are produced, allowing the company to capture economies of scale.
Marginal Benefit Uses
Marginal benefit helps companies ascertain the best price point for goods and services on offer. Given that satisfaction decreases with an increase in consumption, producers might have to price items favorably so that consumers might be tempted to spend more on an additional unit.
Marginal benefits can also help management plan on a new product line. Given the satisfaction that a given product offers, a business might decide on whether to launch a new product line or increase production volume to cater to the market needs.
Summary
The marginal benefit is simply the additional satisfaction that consumers enjoy consuming an additional unit of product or service. The measure also indicates the maximum amount that a consumer might be willing to spend for the purchase of an additional unit.