Assignment Activity

By
Nang San Poung
Marginal analysis is accessing the additional cost or benefit of producing or consuming one more
unit of a good or service. It also analyzes the incremental changes in costs and benefits resulting
from small changes in production or consumption levels. On the other hand, the law of
diminishing marginal utility states that as a person consumes more units of a specific good or
service, the additional satisfaction or utility begins to decrease (Shapiro, D., MacDonald, D.,
Greenlaw, S. A., Dodge, E., Gamez, C., Jauregui, Andres., Keenan, D., Moledina, A.,
Richardson, C., & Sonenshine, R. (2023)).

In the example of deciding whether to offer plant-based milk alternatives to my coffee shop,
using marginal analysis can help make the decision easier. It allows us to compare the cost and
benefits of offering plant-based milk alternatives, including the cost of purchasing and stocking
these alternatives and the increase in revenue from attracting new customers or satisfying the
preferences of existing ones. Furthermore, marginal analysis helps us assess whether offering
these alternatives provides a competitive advantage over other coffee shops in the area.
Moreover, it can assist us in considering the impact on customer retention and royalty. In this
scenario, I would check the current situation first and estimate the demands of the customers.
Then, I will determine the cost and revenue of the incremental cost of offering plant-based milk
alternatives. It’s also crucial to consider environmental and ethical factors. For the last, I will
compare the marginal cost and benefit of these alternatives before making a final decision.

As I mentioned above, as a person consumes more units of goods or services, their utility will
decrease. Introducing plant-based milk options can provide variety to customers and cater to
different preferences, and these options may increase utility for customers who value such
choices. However, as the customers try and become accustomed to this option, the marginal
utility of these alternatives may begin to diminish. In this situation, we should balance the cost
and benefit of the option by assessing the impact of profitability and considering the potential
diminishing returns. In the same way, it is also crucial to understand the dynamic of market
demand. In addition, evaluating customers’ feedback, sales data, and market trends are helpful in
accessing the ongoing utility and demand for plant-based milk alternatives.

Reflecting on my real-life situation, I had a small business that sold traditional street food, which
roasted the food of choice, including mushrooms, vegetables, seafood, and meat. Just like in the
above example, the customers are requesting fish as their food choice. Unfortunately, fish was
more expensive than other foods. At the time, I didn’t know anything about the economy. So, I
added fish for 4 or 5 days as one of the food choices when there were more requests from my
customers, and if there were none, I just stopped. I just repeated that cycle until I had to end my
business because of my mom’s health. With the marginal analysis, I would have asked for
customers’ feedback, evaluated the cost and benefit of the options, and offered satisfaction for
the customers.

References:

Shapiro, D., MacDonald, D., Greenlaw, S. A., Dodge, E., Gamez, C., Jauregui, Andres., Keenan,
D., Moledina, A., Richardson, C., & Sonenshine, R. (2023). Principles of microeconomics (3rd
ed.).