The Wan Tan Mee Uncle presents : A lecture in the application of the Law of Diminishing Marginal Utility in Business

My father, being a street-food connoisseur (an informal one at that), has his fair share of stories involving famous street hawkers. As the story goes, there is a Wan Tan Mee uncle who refuses to sell individual customers more than 4 “sui kaos” (dumplings) at a time. Of course, not all customers are chuffed, and some are grudgingly tolerating the apparent “arrogance” of the uncle.

On a very superficial observation, it seems like the uncle is acting in a very irrational manner, if people want as much dumpings as they want, then he should supply as much dumplings as demanded right? After all, Revenue = Price x Quantity, and since Price is fixed, then he should strive to maximise his profit by increasing the quantity sold.

It turns out that the Wan Tan Mee uncle, like the proverbial Kung Fu Masters you watch on TV, knows what he is doing. Better yet, he is an expert in what he is doing. My dad’s friend, amused (or maybe annoyed) with the antics of this uncle, asked him about the “quota” for customers. The wise uncle explained that he did not (and still does not) want his customers to feel “sickened” by the food as a result of having too much of it.

Unintentionally, the Uncle has applied a Microeconomics Principle – The Law of Diminshing Marginal Utilities. Sui Kows are normally a side dish to Wan Tan Mee, so the “usefulness” as in satiating your hunger is not really that much. However, it derives its utility from “satisfaction.” So you gain quite a sum of utility from your first Sui Kow. Assuming that the “usefulness” of the Sui Kow is fixed in terms of satiating hunger, then the “extra” or marginal utility from consuming another Sui Kow stems from your satisfaction. The problem is, you derive less satisfaction from consuming more Sui Kows.

Algebraically, the satisfaction you get from consuming an additional sui kow(for example) is
S(x) = 1 – 0.05(x)
Where X is the number of Sui Kows you consume and S(x) is your marginal utility for consuming one additional unit of Sui Kow.
So by the time you consume 2o sui kows, your marginal utility (for satisfaction) is 0. Any more than that, and you have a negative “satisfaction” (This is when you start hating Sui Kows).

So ultimately, it seems like the uncle is not being irrational after all. He is a competent entrepreneur who applies Microeconomics Principle well.

P/S: The satisfaction model is constructed on the basis that “usefulness” and “satisfaction” under the concept of Utility are mutually exclusive.(When satisfaction increases, usefulness decreases. Case in point: Do you really need 10 pairs of high heels?) That means P(U) + P(S) = 1. Hence to get the function of satisfaction, simple algebra will give you P(s) = 1 – P(U).
Of course, not everybody’s “full” threshold (capacity for food) is same, it varies among individuals. Still, the conclusion is the same. I.E. in mathematical terms, the satisfaction function is a family of function with infinite number of members.


3 Responses to The Wan Tan Mee Uncle presents : A lecture in the application of the Law of Diminishing Marginal Utility in Business

  1. LENG says:

    this is call 吊价….if the food is nice and has a limited quota………more ppl will cum craving for it…..since not everybody's "full" threshold (capacity for food) is same, and it varies among individuals… can the uncle think 4 sui kao can gao dim every kind of person……he should let ppl choose for themselve and let them satisfy their needs to maximum value……..means when u get fed up wif the sui kao u wont order anymore…..4giv me for my language

  2. Marina says:

    No I think he's right, actually. Sure, people are capable of choosing for themselves; but if you let people choose for themselves, chances are they'll overindulge and then the sui kows will turn them off. Haha personal experience; overload of durian last year and now I can't tahan durian anymore. Besides, Keat Yang is talking about the economics part of it, from the entrepreneur angle and not necessarily from the consumer angle.

  3. GoatKY says:

    Thank you for the comments Leng Boss. The main motivation for the uncle not to allow people to order more sui kows that they would have wanted is to prevent them from getting bored/sick with it.A debatable, but probably safe conjecture is that the uncle subconciously tries to prevent people from deriving 0 marginal utility from his food. There might be some psychological effect that people feel as soon as the marginal utility hits zero. Think of the last time someone around you said they were sick with a type of food and won't have it for quite some time.No food, no matter how delicious or how much a gastronomic experience it delivers, escape from the law of diminishing marginal utility. You might love sashimi, but will you eat it and only it for the rest of your life?

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