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This document discusses using marginal analysis and understanding diminishing marginal utility to make informed decisions about offering plant-based milk alternatives in coffee shops. It explores how to determine the incremental costs and benefits, and assess factors like customer demand, costs, and potential increased satisfaction or reduced satisfaction over time.

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125 views2 pages

Assignment 1

This document discusses using marginal analysis and understanding diminishing marginal utility to make informed decisions about offering plant-based milk alternatives in coffee shops. It explores how to determine the incremental costs and benefits, and assess factors like customer demand, costs, and potential increased satisfaction or reduced satisfaction over time.

Uploaded by

poepwintphyu ko
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment Title: Plant-Based Milk Alternatives in Coffee Shops – Critical Analysis and

Marginal Decision-Making

Introduction: As the owner of a popular coffee shop, the decision to introduce plant-based milk
alternatives like almond milk and oat milk involves strategic analysis and understanding of
customer preferences. This report explores the application of marginal analysis and the concept
of diminishing marginal utility in making informed decisions regarding the inclusion of plant-
based milk options on the menu.

1. Marginal Analysis and Decision-Making: Marginal analysis involves evaluating the


incremental costs and benefits of a decision. In the context of offering plant-based milk
alternatives, marginal analysis assists in determining the impact on revenue, costs, and customer
satisfaction.

For example, by analyzing the additional revenue generated from customers opting for plant-
based milk options versus the cost of stocking and serving these alternatives, a coffee shop
owner can make an informed decision. This analysis includes factors such as price sensitivity of
customers, market demand for plant-based products, and the potential increase in customer
loyalty and satisfaction.

2. Diminishing Marginal Utility and Feasibility: Diminishing marginal utility states that as a
consumer consumes more of a product, the additional satisfaction or utility derived from each
additional unit decreases. Applying this concept to plant-based milk alternatives, the initial
introduction may attract new customers and enhance the overall experience for existing ones.

However, over time, the incremental benefit of offering multiple milk options may diminish as
customers become accustomed to the variety. The feasibility of introducing plant-based milk
alternatives depends on factors such as customer demand, competitive landscape, and the cost-
benefit analysis considering diminishing marginal utility.

Considering diminishing marginal utility involves evaluating the trade-offs between offering
variety and managing inventory, storage, and operational complexities. It also requires assessing
customer preferences and ensuring that the introduction of plant-based options aligns with the
coffee shop's brand identity and values.

3. Real-Life Application of Marginal Analysis: In a previous situation, I utilized marginal


analysis to decide whether to expand the menu offerings at my coffee shop to include specialty
pastries. By evaluating the incremental revenue from pastry sales, the associated costs of
ingredients and labor, and customer feedback on the proposed items, I could make a data-driven
decision.

Marginal analysis influenced my decision-making process by providing a quantitative framework


to assess the potential impact on profitability and customer satisfaction. This approach allowed
me to weigh the benefits of diversifying the menu against the additional operational complexities
and resources required.
Conclusion: In conclusion, the application of marginal analysis and understanding diminishing
marginal utility are crucial in making strategic decisions about introducing plant-based milk
alternatives in a coffee shop. By carefully evaluating the incremental costs, benefits, and
customer preferences, coffee shop owners can make informed decisions that align with their
business goals and customer expectations.

References:

1. Gregory, R. G. (2017). Marginal analysis in decision making: A guide for managers.


Business Economics, 52(1), 46-55.
2. Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under
risk. Econometrica, 47(2), 263-291.
3. Samuelson, P. A. (1938). A note on the pure theory of consumer's behavior. Economica,
5(17), 61-71.

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