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What is Marginal Benefit?

Definition: Marginal Benefit (MB) is defined as the maximum amount a customer is willing to pay for an incremental unit consumption. In other words, MB represents the utility that the customer associates with the consumption of an extra unit of the product.

What does Marginal Benefit Mean?

What is the definition of marginal benefit? This economic concept explains why consumers are willing to pay a certain price for some goods and not for other goods. Typically, the MB increases as a person consumes less of the good and decreases as a person consumes more of it. This makes sense because each time you use a product; the value of next product use diminishes. Take a pizza for example. You get a lot of satisfaction from the first slice of pizza. The second slice is a little less attractive than the first. The third slice makes you full and not interested in pizza anymore. The fourth slice makes you sick. Thus, the benefit of each slice diminishes.

This concept is essentially true when considering the availability of the product. Take cell phones for example. Back in the early 1990s, having a mobile phone that you could communicate with anyone anywhere was a revolutionary concept. Cell phones were expensive and were in short supply. Because of this, consumers were willing to pay more for them.

With the invention of microprocessor chips, the production costs came down and more companies started producing them and making them readily available to the public. As the supply grew, the aspirational value of the product decreased. People werenít willing to pay as much for the phones as before because there were more choices.

Letís take a look at another example.

Example

Letís assume a rock band books a nationwide tour with 10 dates. The tickets are available online for $50. Consumers are willing to pay $50 for the tickets because there are only a few available chances to see the band play. Thus, the MB is high.

Contrast this with the band booking a tour with 25 dates. Consumers will be less likely to pay $50 for the tickets because there are so many dates available to see the band. The band can command a higher price for each ticket if they limit the number of shows they play.

Summary Definition:

Define Marginal Benefit: MB means the measure of the utility, an additional unit of a product would attract from the market.

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