Calculate and relate Total Utility and Marginal Utility, applying the Law of Diminishing Marginal Utility.
Hook presenting the subjective decline in satisfaction from repeated consumption.
Imagine eating your favorite fruit, a banana, when you are very hungry. The first one tastes amazing. The second one is good, but maybe not as incredible as the first. By the time you eat the fifth banana, you might not even want it anymore! In economics, this changing level of satisfaction can actually be measured.
Demonstration of calculating MU using the difference in TU for consecutive units.
Problem. Suppose 4 bananas give us 28 units of total utility () and 5 bananas give us 30 units of total utility (). Calculate the marginal utility of the 5th banana.
Partially solved table calculation for TU and MU.
Consider a consumer eating bananas, where Total Utility (TU) and Marginal Utility (MU) are recorded step-by-step. For the first unit, TU is 12 and MU is 12. For the second unit, TU increases to 18. The MU of the second unit is calculated as the change in TU, which equals 18 minus 12, or . Moving to the third unit, the MU is given as 4. To find the TU for the third unit, we add the MU of the third unit to the previous TU, resulting in 18 plus 4, which is . By the fifth unit, TU reaches its maximum of 24 and remains at 24. Since there is no further change in Total Utility, the MU for the fifth unit evaluates to .
Formal definitions and formulas for Total and Marginal Utility.
This simply means that TU derived from consuming n units is the sum total of the marginal utilities of each individual unit consumed up to the n-th unit.
Fig 2.1 showing TU increasing at a decreasing rate, while MU falls and becomes negative.
The marginal utility diminishes with an increase in consumption, crossing zero exactly when total utility is at its maximum.
MCQ testing the relationship between TU maximum and MU.
Suppose the Total Utility (TU) from consuming 3 slices of pizza is 45 units, and the TU from consuming 4 slices is 50 units. What is the Marginal Utility (MU) of the 4th slice?