Question

How does marginal utility explain volume based discounts?

Answer 1

Marginal utility law states that the satisfaction (utility) provided for an additional unit of a good becomes lower at each new unity added.

Thus, you'll be satisfied with additional units of a good, but the `n^(th)` unit will provide you alone with less utility than the `(n-1)^(th)` unit (or any other before) did. This is true when we think of food, for example. When you start to eat, the first McNugget is so tasty and delicious! But if you buy, let's say, five little boxes, the `44th` unit might not look so mouth-watering...

This means that quantity discounts, based on marginal utility law, are given in order to match the lower satisfaction that the additional units will provide - you'll be less satisfied? No problem, I'll sell it cheaper!