Certified Supply Chain Professional (CSCP) Practice Exam

What does an increase in marginal utility indicate in a marginal analysis context?

1. Higher production costs

2. Greater satisfaction from additional units consumed

3. Lower overall sales

4. Decrease in demand

The correct answer is: Greater satisfaction from additional units consumed

In the context of marginal analysis, an increase in marginal utility signifies that a consumer derives greater satisfaction or benefit from consuming additional units of a good or service. Marginal utility is the additional satisfaction gained from consuming one more unit, and an increase in this value indicates that the consumer values the extra unit more than previous ones. This concept is crucial in understanding consumer behavior and decision-making related to consumption. When marginal utility rises, it suggests that the consumer is willing to consume more of the product, as each additional unit enhances their overall satisfaction. This aligns with the principle of diminishing marginal utility, where initially, the satisfaction gained from additional units may decline, but under certain circumstances (such as increased appetite, scarcity, or changing preferences), the additional satisfaction may increase. This understanding is foundational for firms as they consider pricing strategies and production levels, since consumers' willingness to purchase additional units based on their perceived value directly influences demand. In contrast, higher production costs, lower overall sales, or a decrease in demand would not directly correlate with an increase in the marginal utility, making the focus on consumer satisfaction pivotal in this analysis.