Anonymous asked in Social ScienceEconomics · 1 month ago

In perfect competition, why is it good that Utility = 0, shouldn't Utility/Benefit be more than 0? Otherwise how is a company making money?

2 Answers

  • Oiy
    Lv 6
    1 month ago

    Total utility might not reach zero,but its marginal value. In economics, it is MU/$ That makes the sense. And everything will stop where all MU/$ are equal.

  • 1 month ago

    Maybe the definition of utility here is from the consumer's viewpoint, not the manufacturer's.  The price of a certain very tasty brand R of ramen is driven up to what the market will bear.  Considering that price, the hypothetical consumer is right on the fence between paying a dollar more for brand R, or saving a dollar going with brand T.  When the cost is considered, the net utility of getting R over T is zero.

    It might cost company R 20 cents to make their ramen, and company T 15 cents, so both companies are making money.

    I will yield to an Economist or Economics major, though.

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