As an individual consumes more units of an item, the person eventually experiences diminishing
20-1. The campus pizzeria sells a single pizza for $12. If you order a second pizza, however the pizzeria charges a price of only $5 for the additional pizza. Explain how an understanding of marginal utility helps to explain the pizzeria’s pricing strategy.
Concept Introduction:
UTILITY: It is the numerical value assigned to the level of satisfaction derived from consumption of goods and services.
MARGINAL UTILITY- It is the numerical value assigned to the level of satisfaction derived from consumption of additional good or service.
DIMINISHING MARGINAL UTILITY: It is the law of economics which states that as a person increases consumption of a product while keeping consumption of other products constant, there is a decline in the marginal utility that person derives from consuming each additional unit of that product.
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