Question

5. Briefly explain why when the marginal cost of an activity increases as one does more of it and why the marginal benefit of an activity decreases the more one engages in it.

Answer 1

The law of decreasing marginal utility states that the actual utility obtained from carrying out some specific activity decreases as you perform that activity more often. E.g. you are very thirsty and decide to drink a glass of Coke. The first glass will yield a very high number of utils. If you are still thirsty, you might drink a second glass, but this time the second glass will yield a lower amount of utils. If you keep drinking more Coke, eventually you will be full and will not even enjoy drinking it.

The opposite happens with the marginal cost of carrying out an activity. For example, you like to bike outdoors. Biking outdoors one day per week will cost you X amount (including actual costs of biking plus opportunity costs). But if you decide to do it 2 times per week, your opportunity costs will increase. If you decide to do it 3 or more times per week, you better be good enough to become a professional or have a very tolerant boss. Opportunity costs of biking outdoors more days per week will keep increasing.