LAW OF DIMINISHING OF MARGINAL UTILITY

As the use of an input increases (with other fixed inputs), a point will eventually be reached at which the resulting additions to output decreases.

MARGINAL UTILITY is derived as the change in utility as an additional unit is consumed.Utility is an economic term used to represent satisfaction.

Example of Diminishing Marginal Utility:

Suppose an individual purchases a bucket of KFC chicken having 10 pieces as she was hungry. After having 4 pieces she was satisfied as her hunger was over. She wasn't as hungry as before so the 5th piece has a smaller benefit and enjoyment as the first and she is now not hungry anymore.

In-fact the 5th piece has experienced a diminished marginal utility as well, as it is difficult to be consumed because the individual experiences discount upon being  full form food. The individual is so full that consuming the last piece results in negative utility. The last piece that demonstrate the decreasing utility that is experienced upon the consumption of any good. In a business application, a company may benefit from having three accountants on its staff. However, if there is no need for another accountant, hiring a fourth accountant result in a diminished utility, as little benefits is gained from a new hire.

DIMINISHING PRICES

As the utility of an product decreases as its consumption increases, consumers are willing to pay smaller amounts for more of the product.