Marginal benefit

Marginal benefit is the incremental increase in the benefit to a consumer caused by the consumption of one additional unit of a good or service.

As a consumer’s consumption level increases, the marginal benefit tends to decrease (which is called diminishing marginal utility). Thus, the marginal benefit experienced by a consumer is highest for the first unit of consumption, and declines thereafter.

For example, a customer is willing to pay $5 for an ice cream, so the marginal benefit of consuming the ice cream is $5. However, the customer may be substantially less willing to purchase additional ice cream at that price – only a $2 expenditure will tempt the customer to buy another one. If so, the marginal benefit has declined from $5 to $2 over just one extra unit of ice cream. Thus, the marginal benefit declines as the consumer's level of consumption increases.