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Microeconomics Assignment Plant Based Milk

The document analyzes the decision-making process for coffee shop owners considering the addition of plant-based milk alternatives using marginal analysis and the principle of diminishing marginal utility. It emphasizes the importance of evaluating the marginal benefits against the marginal costs to ensure profitability and avoid over-expansion of product lines. The concepts discussed not only apply to business decisions but also enhance personal decision-making by preventing resource depletion.

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15 views6 pages

Microeconomics Assignment Plant Based Milk

The document analyzes the decision-making process for coffee shop owners considering the addition of plant-based milk alternatives using marginal analysis and the principle of diminishing marginal utility. It emphasizes the importance of evaluating the marginal benefits against the marginal costs to ensure profitability and avoid over-expansion of product lines. The concepts discussed not only apply to business decisions but also enhance personal decision-making by preventing resource depletion.

Uploaded by

mitchelshangwa
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Plant-Based Milk Alternatives in Coffee Shops – Critical Analysis

and Marginal Decision-Making

Department of Economics, University of the People

Mr Alabi O. Taofiq

17 April 2025
Introduction

As consumer tastes evolve, plant-based milk alternatives such as almond and oat milk are

becoming increasingly popular in coffee shops. As a business owner in a fast-paced urban

environment, deciding whether to offer these options requires more than just observing

trends - it demands a structured economic approach. Marginal analysis and the principle

of diminishing marginal utility can guide the evaluation of this decision. These tools

allow business owners to consider trade-offs, measure opportunity costs, and make

rational choices that align with both consumer preferences and profitability.

1. Applying Marginal Analysis to the Decision

Marginal analysis involves examining the additional benefits and costs of a decision to

determine if the change is worthwhile. In economic terms, this means considering

whether the marginal benefit of adding a new option, like almond or oat milk, exceeds its

marginal cost (Shapiro et al., 2023).

In my coffee shop, the marginal cost of offering almond milk might include purchasing it

at a higher price than dairy milk, storing it, and training staff to use it properly. On the

other hand, the marginal benefit includes potential increases in customer satisfaction,

loyalty from health-conscious consumers, and the ability to charge slightly higher prices

for plant-based alternatives. For example, if a cup of oat milk latte costs $0.50 more to

make but allows for a price increase of $1.00, the marginal benefit outweighs the
marginal cost, making the change profitable.

Importantly, marginal analysis is a form of change analysis. It doesn’t focus on totals but

rather on what happens when you do “a little more or a little less” (Shapiro et al., 2023).

This allows business owners to make fine-tuned decisions about what to add or remove

from a menu, based on incremental value rather than assumptions.

2. Considering Diminishing Marginal Utility

The law of diminishing marginal utility states that as a person consumes more of a good,

the additional satisfaction (utility) from each extra unit declines (Shapiro et al., 2023). In

our context, offering plant-based milk provides high utility to a customer the first time,

perhaps because it meets a dietary need or ethical value. But once several options are

available (e.g., almond, oat, soy, coconut), the utility added by each new type diminishes.

This means offering the two most popular options (such as almond and oat) might satisfy

the majority of customers, while introducing additional types could have limited impact,

despite higher costs. For example, adding cashew or rice milk may bring minimal

additional satisfaction while complicating supply management and increasing storage

needs. As a result, recognizing diminishing marginal utility can prevent inefficient over-

expansion of product lines.

Furthermore, customers’ willingness to pay might reflect this utility curve. The first
introduction of plant-based milk may justify a higher price, but continued additions are

unlikely to allow for similar price increases. Hence, diminishing marginal utility not only

affects satisfaction but also impacts revenue potential and opportunity cost.

3. A Real-Life Example of Marginal Analysis

A personal experience where marginal analysis would have benefited my decision-

making occurred when I volunteered to manage a community event. I initially committed

to overseeing logistics, which aligned with my skills and time. However, I began taking

on more responsibilities; marketing, entertainment coordination, and refreshments

thinking it would improve the event.

If I had applied marginal analysis, I would have realized that the marginal cost in stress,

time, and quality of work eventually exceeded the marginal benefit of doing more. The

extra tasks led to burnout and reduced the effectiveness of my initial contributions. Had I

paused to evaluate whether the benefit of each new task justified the personal cost, I

could have maintained focus, delegated better, and produced higher-quality outcomes.

This mirrors the logic used in economic decisions: just as a business must analyze the

return on adding another product, individuals must evaluate whether additional effort

truly adds value, or simply depletes resources.


Conclusion

The concepts of marginal analysis and diminishing marginal utility offer essential

insights into business decision-making, especially when facing evolving consumer

preferences. In deciding whether to offer plant-based milk alternatives, a coffee shop

owner must weigh the incremental benefits of such a change against its incremental costs

and recognize when added options no longer enhance utility meaningfully. These tools,

grounded in economic theory, provide a disciplined and practical way to allocate limited

resources efficiently. Beyond business, applying these concepts in real-life scenarios

enhances decision-making and helps avoid overcommitment or inefficient use of time,

money, and effort.


References

Mankiw, N. G. (2021). Principles of economics (9th ed.). Cengage Learning.

Shapiro, D., MacDonald, D., Greenlaw, S. A., Dodge, E., Gamez, C., Jauregui, A.,

Keenan, D., Moledina, A., Richardson, C., & Sonenshine, R. (2023). Principles of

microeconomics (3rd ed.). OpenStax. https://openstax.org/books/principles-

microeconomics-3e/pages

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