Marginal utility
Marginal utility refers to the addition of satisfaction to the total utility by the consumption of every additional unit of the commodity OR Marginal utility refers to the satisfaction from the last unit of consumption at a point of time. It shows the rate at which total utility rises.
Marginal utilty of a commodity is the difference between the total utility of two successive units of consumption. It may be written as M U = TU(n) –TU(n – 1).
This utility derived will diminish as consumption rises, become zero, and then negative (disutility). There is an inverse relation between the stock of the commodity and the marginal utility. Larger the stock, lesser the marginal utility and smaller the stock, larger the marginal utility.
A consumer will stop consumption at a point where the marginal utility is equal to zero. If the consumer has to pay for the commodity, he will stop at a point where the marginal utility is equal to price. If the price of he commodity is high / low the last unit consumed will be earlier / later stage.
Total utility
Total utility refers to he total satisfaction derieved from all units of consumption at a point of time . It is the psychological satisfaction experienced by the consumer from all units of consumption. t shows the rate at which marginal utility diminishes.
TU = MU TU(n ) = M U(1) + MU(2 ) + MU(3)………….. MU(n)
As consumption rises, total utility will rise at a diminishes rate, becomes constant and then starts decreasing. A rational consumer will stop consumption where the total utility is maximum and constant. Total utility tends to be more with a larger stock and less with a smaller stock. Mathematically total utility is a direct function of the number of units consumed. TU = f (Qx).
Average utility
Average utility is the utility derived per unit of consumption of a commodity. It is calculated dividing total by the number of units consumed.
A U = T U /Qx Average utility = Marginal utility / number of units
|
Units of consumption |
Marginal utility |
Total utility |
Average utility |
|
1 |
3 |
3 |
3.0 |
|
2 |
2 |
5 |
2.5 |
|
3 |
1 |
6 |
2.0 |
|
4 |
0 |
6 |
1.5 |
|
5 |
-1 |
5 |
1.0 |