This was the topic for last weeks LBC. I have been finding it difficult to spare time these days to write regularly. The year 2017 has started like this irregular weekend blogging, hope I will break it sooner.
I have written on Marginal utility earlier – Marginal analysis. Let me first explain what is this jargon? My wife explained it to me – see if you are very hungry and you are given an orange you would find it the most satisfying thing in the world. My wife is a CA, she knows economics better than me, I was trying to come up with an example of buying a 1 bedroom hall kitchen (BHK in short) apartment in Mumbai vs a 2 BHK or 3 BHK etc, but I could not come up with some example like that. She does not like oranges as much, wonder why and how orange came as an example in her mind. It is difficult to analyze mind of a lady!
She continued – once you have had one orange and your hunger is bit quenched, now the second or a third orange would not be that satisfying to you. The satisfaction you get from the second or third orange is less, marginal utility is the same what is the incremental utility, benefit or satisfaction you get from eating the one extra orange.
The concept can be applied to anything in life – having an extra laptop or mobile to a home. In terms of economics the concept fits perfectly. Marginal utility of anything reduces over the quantity. Just because of the same we have abused air, water and everything that we have available freely. I am trying to relate this concept to a Sanskrit saying – Ati sarvatra varjayet (अति सर्वत्र वर्जयेत) – surplus of anything is not good.
The next best thing that comes to my mind on it is – love. I have had a tough time explaining to someone that love does not necessarily mean sex, I have written on love earlier. Love is something where there may not necessarily be a marginal utility. It is something unconditional, something endless. So goes, the concept of profits and revenue. Yet both the types of endlessness are of different types. In love – a particular type – there is no ownership. When there is no ownership and mostly when there is no “I” or ego, it automatically becomes endless – so the concept of marginal utility ends the slop is infinite. On the other hand how much is too much for a company to grow? There is no marginal utility question on revenue each unit revenue brought adds utility in terms of PAT. Of course we may say that until breakeven of a company the marginal utility of each unit revenue is steep whereas after a certain profit margin say 30% PAT the utility diminishes. Sometimes sales are differed to next quarter or booked in current quarter even if that costs in terms of dumping products to distributors.
If we start living in present moment in spontaneity I wonder if we would even have a complex calculation of “Marginal utility” in life.
I am late in writing this post again, Marginal utility was last week’s LBC topic where Maria, Rummuser, Ashok, Shackman and I write weekly. You can visit their blogs and read their thoughts on the topic.