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Marginal Homogeneity

TL;DR

Section titled “TL;DR”
  • The marginal value (marginal cost or marginal benefit) does not change when input variables change.
  • Applies to marginal products in production and to marginal utility in consumption examples given.
  • Used to describe situations where additional units of input yield the same marginal effect.

Definition

Section titled “Definition”

Marginal homogeneity is a property of a function that indicates that the marginal value of the function remains constant as the input variables change. In other words, it means that the marginal cost or marginal benefit of a function does not change as the input variables change.

Explanation

Section titled “Explanation”

Marginal homogeneity describes a situation in which, as the levels of inputs vary, the marginal effect (for example, marginal product, marginal cost, or marginal benefit) associated with those inputs remains unchanged. The concept is illustrated using both production and consumption contexts in the source material: a firm producing multiple products with fixed marginal products per additional unit of an input, and reference to the law of diminishing marginal utility in consumption.

Examples

Section titled “Examples”

Production example

Section titled “Production example”

Consider a company that produces two products, X and Y, using two inputs, labor and capital. Suppose the marginal product of labor for product X is 10 units and the marginal product of labor for product Y is 20 units. This means that for each additional unit of labor used, the company will produce an additional 10 units of product X and 20 units of product Y.

If the company increases the production of product X by using more labor, the marginal product of labor for both products will remain constant. This means that for each additional unit of labor used, the company will still produce an additional 10 units of product X and 20 units of product Y.

Consumption example (law of diminishing marginal utility)

Section titled “Consumption example (law of diminishing marginal utility)”

The law of diminishing marginal utility states that as a person consumes more units of a particular good, the marginal utility (satisfaction) derived from each additional unit will decrease. For example, a person may derive a high level of satisfaction from consuming the first slice of pizza, but as they continue to eat more slices, the satisfaction derived from each additional slice will decrease. This means that the marginal utility of each additional slice of pizza remains constant as the person consumes more slices.

Use cases

Section titled “Use cases”
  • Observed in a variety of economic situations, including the production of goods and the consumption of goods.
  • Helps to explain how individuals and firms make decisions in response to changes in their circumstances.
Section titled “Related terms”
  • Marginal product
  • Marginal utility
  • Marginal cost
  • Marginal benefit
  • Law of diminishing marginal utility
  • Inputs (labor and capital)