Learning Law of Diminishing Marginal Utility in Capitalism Lab

Capitalism Lab is a business simulation game that can help students learn about the Law of Diminishing Marginal Utility in a practical and engaging way. Here’s an example of how this can be done:

1. Set up a factory

The student can start by setting up a factory to produce a particular product, such as cookies. They can decide on the initial production level and set the price of the cookies.

2. Increase production

The student can then gradually increase the production level of the cookies while keeping the price constant. As they increase production, they will notice that the cost per unit of production goes down due to economies of scale.

3. Observe marginal utility

As the student increases production, they can also observe the marginal utility of each additional unit of cookies produced. Initially, the marginal utility of each additional unit will be high as there is a high demand for the product. However, as the student continues to increase production, the marginal utility of each additional unit will start to decrease.

4. Understand the Law of Diminishing Marginal Utility

The student can then use this observation to understand the Law of Diminishing Marginal Utility. This law states that as a person consumes more and more units of a product, the additional utility they derive from each additional unit decreases. In the case of the cookies, this means that the first few cookies consumed will provide a high level of satisfaction, but as more cookies are consumed, the additional satisfaction derived from each additional cookie decreases.

5. Analyze the impact on pricing

The student can then analyze how the Law of Diminishing Marginal Utility impacts pricing. If the marginal utility of each additional unit is decreasing, the student may need to lower the price of the cookies in order to continue selling them. This is because consumers will only be willing to pay a certain price for a product that provides a certain level of utility.

6. Consider external factors

Finally, the student can consider external factors that may impact the Law of Diminishing Marginal Utility. For example, if a new competitor enters the market, the student may need to lower their prices in order to remain competitive. Alternatively, if there is a sudden increase in demand for cookies (e.g. due to an advertising campaign), the student may be able to increase their prices without decreasing sales.

Overall, playing Capitalism Lab can help students learn about the Law of Diminishing Marginal Utility in a practical and engaging way, while also teaching them important business and economic concepts.