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Marginal Benefits and Costs

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Many apartment complex owners are installing water meters for each aparmtent and billing the occupants according to the amount of they use. This is in constrast to the former procedure of having meter for the enire complex and dividing up the collective water expense as part of the rent. Where individual meters have been installed water usage has decline 10 to 40 percent. Explain that drop referring to price and marginal utiility

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Solution Summary

This solution uses a collective water meter to illustrate and define the concept of marginal benefit.

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Marginal utility is the additional benefit derived from the next unit consumed. In the case of water, you can see how marginal utility falls as more is consumed. The first gallon of water would have a very high benefit (because you would be very thirsty). Then you would start using water for other things - washing clothes, dishes, and so forth. You will keep ...

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