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Education
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English (U.S.)
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Law of diminishing marginal utility and free goods - Discussion

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1) Would the law of diminishing marginal utility apply to a good that is "free," such as unpolluted air or a public beach? Why or why not? Is it possible to have a situation with this "free" good where marginal utility may be negative? Give examples to explain your answer.What factors would affect consumer behavior in the case of such goods? What economic principles might consumers use in decision making? (275 words) 2)-Describe the cost structure of your firm when you begin operations. Detail all the costs you would expect to incur. How would you expect this cost structure to change: a) five years after you begin operations; b) after two decades of operation? What cost components would increase and which ones would decrease over time? (275 words)
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Discussion: Law of diminishing marginal utility and free goods
The law of diminishing marginal utility states that as consumption of good increases then the marginal utility declines for each additional unit (Hirschey, 2009). Unpolluted air and public beaches are examples of free goods. Thus, free goods relate to those goods whereby there is no scarcity, there is no diminishing marginal utility for free goods, but consumption continues so long as the total utility increases. Thus, it is not possible for a person to consume a free good till marginal utility is negative. Furthermore, consumers are rational and willing to consume a free good so long as the marginal utility does not fall beyond zero (Boyes &Melvin, 2012). Since, free goods have no prices consumption increases as the total utility also rises, but when there is no additional benefit derived consumers choose not to go beyond the point where there is negative utility.
Discussion: Cost structure of a firm
An effective cost structure system enables a firm to maintain sustainable growth (KPMG, 2008), and in case of an accounting firm the startup costs are huge, while revenue will rise after making contacts with various clien...
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