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12 August, 05:04

At Nice Price for the Ice, an ice cream parlor, customers routinely buy a scoop of ice cream for $2.75. If consumers purchase one scoop of ice cream at $2.75, then why don't they keep buying more and more scoops for $2.75 until the store sells out?

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  1. 12 August, 05:31
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    Consumers would not keep buying ice cream at $2.75 because after purchasing a certain amount of ice cream, utility would be maximised and consumers would not value ice cream at $2.75 anymore. Consumers would not purchase a product it the marginal utility that would be derived from consuming the product is less than the price.

    According to the law of diminishing marginal utility, as more units of a product is increased, total utility increases but at a decreasing rate.

    Explanation:

    Marginal utitiy is the increase in utility that is derived from consuming one more unit of a product.
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